How to Apply to the SR&ED Tax Incentive Program (T661 Guide)
The Scientific Research and Experimental Development (SR&ED) tax incentive is Canada’s flagship research and development program. It allows organizations to claim a deduction against income and earn an investment tax credit (ITC) on eligible R&D expenditures completed in Canada. This how‑to article explains, in clear steps, how to apply for SR&ED with the Canada Revenue Agency (CRA) using Form T661 and the related tax schedules.
As of December 1, 2025, claimants file SR&ED with their annual income tax return. Corporations generally use T2 Schedule 31 (T2SCH31) to calculate the ITC; individuals with business income use T2038‑IND. This guide covers eligibility screening, documents to prepare, the T661 technical narrative, the choice between the proxy and traditional methods, statutory deadlines, and what happens after you submit.
Overview of the SR&ED Program
SR&ED provides two federal incentives:
A deduction against income for eligible SR&ED expenditures.
An investment tax credit (ITC). The basic ITC rate is 15%; many Canadian‑controlled private corporations (CCPCs) may qualify for an enhanced refundable rate (commonly 35%) up to an expenditure limit set in legislation. Always verify current thresholds with CRA before filing because rules and limits can change.
SR&ED is open to corporations, individuals, trusts, and partnerships that perform eligible work in Canada. Provincial and territorial R&D tax credits may stack with SR&ED and should be assessed in tandem with the federal claim.
This article focuses on how to submit a compliant claim and avoid common pitfalls—so your project team can move efficiently from planning to approval.
Eligibility Requirements
Before beginning the application, confirm that your work and entity type are in scope. At a high level, SR&ED supports systematic investigation or search carried out by means of experiment or analysis in a field of science or technology.
Use this quick screen:
Eligible claimant types: corporations (including CCPCs and other corporations), individuals with business income, trusts, and partnerships.
Location: the work must be performed in Canada to be eligible federally (foreign work is generally ineligible; limited cases may apply for support work—confirm specifics).
Eligible work: activities must address technological or scientific uncertainty, aim for technological advancement, and be conducted systematically. Routine engineering, quality control, or commercial production without an attempt to resolve uncertainty is generally not eligible.
Evidence: you must maintain contemporaneous records that show the hypotheses, tests/experiments, iterations, and results (for example, design logs, test data, version control, lab notebooks).
Timing: the expenditures and the work must fall within your tax year; file within the statutory SR&ED reporting deadline (see “Application Timeline”).
If you are unsure about eligibility, consider a pre‑claim discussion with a qualified advisor or consult CRA guidance to benchmark your project against the legislative criteria.
Required Documents
Gather a complete package before completing Form T661. Strong documentation improves review outcomes and speeds processing.
Prepare:
Technical records: problem statements, scientific or technological uncertainties, hypotheses, experimental plans, test protocols, datasets, error logs, design iterations, code repositories and commits, lab notebooks, photos, prototypes, and failure analyses.
Time tracking: timesheets per employee showing time spent on SR&ED tasks by project and phase; include payroll summaries and allocation methodology.
Financial evidence: vendor invoices, purchase orders, proof of payment, contracts with subcontractors, statements of work, materials consumed/transformed, and scrap records.
Corporate records: legal name, BN, fiscal year‑end, contact details, and ownership (for CCPC status).
Method selection support: calculations for the SR&ED prescribed proxy amount (PPA) if using the proxy method, or overhead allocation workpapers if using the traditional method.
Forms: the current version of T661, and either T2SCH31 (corporations) or T2038‑IND (individuals). Partnerships should coordinate with partners for correct reporting.
Common document mistakes to avoid:
Writing the technical narrative after year‑end without contemporaneous evidence.
Missing subcontractor agreements or invoices to substantiate arm’s‑length payments.
Timesheets that track only “R&D total hours” without linking to specific trials or tasks.
Step‑by‑Step Application Process
Follow this nine‑step process to submit a complete, defensible SR&ED claim.
Step 1: Confirm eligibility and define projects
Identify each SR&ED “project” as a set of activities undertaken to resolve a specific technological uncertainty. Draft a concise problem statement and define the scientific or technological knowledge gap you attempted to close.
Step 2: Map activities and personnel
List the specific experimental development or pure/applied research activities, the staff who performed the work, and the periods involved. Tag activity logs and timesheets to each SR&ED project.
Step 3: Choose your cost method (proxy vs. traditional)
Proxy method: Claim the prescribed proxy amount (PPA) instead of tracking actual overhead. This simplifies administration and is common for claimants with material labour costs.
Traditional method: Track actual overhead linked to SR&ED (e.g., utilities, supplies) with a defensible allocation basis. Choose the method that best reflects your records and cost structure.
Step 4: Compile financial support for eligible expenditures
Aggregate eligible salaries and wages, materials consumed or transformed, and contract payments for SR&ED performed in Canada. Exclude ineligible costs (e.g., capital costs where ineligible, routine QA, sales/marketing, and non‑SR&ED portions of mixed activities). Reconcile totals to your general ledger.
Step 5: Draft the T661 technical narrative
Complete the T661 project descriptions clearly and succinctly:
Describe the technological uncertainties you faced.
Explain hypotheses and the systematic approach to experimentation.
Summarize tests, iterations, failures, and what you learned (advancement).
Quantify the work effort (person‑months) and connect to the claimed costs.
Avoid marketing language. Use factual, technical wording supported by records.
Step 6: Complete the forms (T661 + ITC schedule)
Form T661: Enter claimant info, project details, labour/material/contract costs, method (proxy or traditional), and any collaboration details.
Corporations: Complete T2 Schedule 31 to calculate the SR&ED ITC, refundable vs. non‑refundable portions, and any carryback/carryforward.
Individuals with business income: Complete T2038‑IND to compute the ITC.
Validate that totals on T661 agree with the ITC schedule and your tax return.
Step 7: Check provincial/territorial credits
Determine whether you qualify for provincial R&D credits (e.g., Quebec, Ontario, British Columbia, Alberta). Many credits can be claimed in addition to SR&ED, but each has distinct forms, rates, and refundability. Align your filing sequence and ensure consistency across federal and provincial claims.
Step 8: File with your income tax return by the SR&ED deadline
Submit the SR&ED forms with your tax return electronically through CRA‑certified software or as otherwise permitted. Ensure all attachments (T661, T2SCH31 or T2038‑IND, and any provincial forms) are included. Retain your detailed evidence; do not send bulky technical appendices unless requested.
Step 9: Track the review and respond promptly
After filing, monitor your CRA account and mail for requests for information (RFIs) or a technical/financial review. Respond within stated timelines, referencing contemporaneous records. If adjustments are proposed, you may provide clarifications or additional evidence; keep tone factual and professional.
Application Timeline
SR&ED has a hard reporting deadline that is separate from filing your corporate T2 or individual T1 deadline. Missing it generally results in a lost claim for that year.
As of December 1, 2025, deadlines are:
Corporations: 18 months after the end of the tax year.
Individuals with business income: 17.5 months after the end of the tax year.
Trusts: 15 months after the end of the tax year.
Examples for a December 31, 2024 year‑end:
Corporation: deadline is June 30, 2026 (18 months after year‑end).
Individual with business income: deadline is June 15, 2026 (17 months and 15 days).
Trust: deadline is March 31, 2026 (15 months).
Processing times vary with claim complexity and review workload. Build time into your calendar for potential RFIs or on‑site/virtual reviews.
Tips for a Successful Application
Write for technical reviewers: focus on uncertainty, hypotheses, tests, and learning—not business outcomes or market benefits.
Keep contemporaneous evidence: log experiments, iterations, and failures as they occur; preserve datasets and version control.
Tie costs to activities: ensure timesheets and invoices link directly to project tasks and dates.
Choose the right method: proxy vs. traditional should follow your documentation reality. Do not switch casually year‑to‑year without rationale.
Align with provincial credits: synchronize definitions of eligible work and costs to avoid mismatches.
Reconcile everything: totals in T661 must reconcile to your ledger and to the ITC schedule in your tax return.
Plan for questions: assemble a review folder with key evidence, contacts, and explanations ready to share if CRA asks.
Common Mistakes to Avoid
Missing the statutory deadline (e.g., filing after 18 months for corporations).
Submitting narratives that describe routine development without demonstrating technological uncertainty or systematic investigation.
Double‑counting costs across projects or between federal and provincial claims.
Weak time tracking that cannot withstand sampling during review.
Claiming foreign work or non‑SR&ED activities such as routine QA, debugging after commercialization, or market research.
Inconsistent numbers between T661 and T2SCH31/T2038‑IND.
Ignoring recapture rules or interactions when assets or government assistance are involved.
What Happens After You Apply
Acknowledgement: You may receive confirmation that your return and schedules were received.
Desk or field review: CRA may conduct a financial review, a technical review, or both. You will receive RFIs with specific questions.
Outcome: CRA issues a notice of assessment or reassessment reflecting any SR&ED ITC, refund, or carryforward.
If approved: Record the ITC, plan carryforward/carryback if applicable, and align with provincial claims. Consider setting up a cadence for ongoing documentation to improve next year’s claim.
If adjusted or denied: Review reasons, provide additional evidence if requested, and consider notice of objection routes within timelines if you disagree.
Conclusion
Applying for the SR&ED tax incentive in Canada requires clear evidence, accurate forms, and attention to deadlines. By organizing your technical records, selecting the appropriate cost method, and completing T661 with T2SCH31 or T2038‑IND, you can submit a defensible claim on time. For deeper planning—such as stacking provincial credits or preparing for a review—establish processes now so next year’s SR&ED claim is even more efficient.
