Many manufacturers assume SR&ED is for labs and software companies. It isn’t. When your team solves a technical problem that standard practice couldn’t, by testing and iterating on the shop floor, that work can earn refundable tax credits, even if the trial failed. Here are five signs your work qualifies, and what usually doesn’t.
1. Standard practice couldn’t solve the problem
The starting point is a technological uncertainty: your engineers didn’t know whether, or how, they could reach the result using what is already known in the industry. A new material that cracks under your forming process, a part that won’t hold tolerance at production speed, a cell that has to handle a product mix no off-the-shelf system supports. If a competent engineer could have looked up the answer, it’s not SR&ED.
2. You ran trials to find the answer
SR&ED needs a systematic investigation: you formed an idea of what might work, tested it, looked at the results and adjusted. Test batches, prototype fixtures, design-of-experiments runs and tooling iterations are typical evidence.
3. You learned something, even if it failed
The goal is a technological advancement: new knowledge about how the material, process or machine behaves. A trial that shows an approach doesn’t work still counts. A successful product isn’t required.
4. You kept records as you went
Claims hold up when the evidence was created during the work: dated test logs, CAD revisions, scrap and rework reports, engineering change notes, photos, and timesheets showing who worked on what. Reconstructing it all a year later is where many claims weaken.
5. Skilled people spent real time on it
Engineers, technologists and machinists who ran the trials are usually where most of the claim comes from. Their wages for the time spent on the eligible work, materials consumed or transformed in testing, and much of the cost of outside contractors can qualify.
What usually doesn’t qualify
- Routine quality control and testing to standard specifications
- Ordinary set-up, maintenance and commissioning of standard equipment
- Cosmetic or style changes
- Applying a method that is already known and documented
- Market research and sales promotion
What it can be worth
Canadian-controlled private corporations can earn a 35% refundable federal investment tax credit on qualifying expenditures up to an annual limit, and Ontario adds its own credits on top. Refundable means it can come back as cash even when the company owes no tax. What any company receives depends on its own costs and work, so we review eligibility before estimating anything.
Don’t miss the deadline
An SR&ED claim is due 12 months after your corporate tax return’s due date, which for most companies is 18 months after the year end. Late claims are lost. See Corporate Tax Return Due Dates in Canada (2027).
Free SR&ED eligibility review
Sun Tax Accounting prepares SR&ED claims for Ontario manufacturers and supports them through CRA reviews. Tell us what your team worked on this year, and we’ll tell you whether it’s worth claiming. Book a free consultation or call (647) 831-7979. More about our SR&ED services.
General information current to October 2026, not advice for your situation. Eligibility follows the CRA’s SR&ED policies.