Every year, thousands of Canadian businesses that may qualify for SR&ED tax credits either underclaim or never apply at all. The Scientific Research and Experimental Development program, better known as SR&ED, remains Canada’s largest federal tax incentive program for research and development. The Canada Revenue Agency describes SR&ED tax incentives as a program that allows Canadian businesses conducting eligible R&D work to claim an income tax deduction and earn an investment tax credit.
Source: Canada Revenue Agency — SR&ED Tax Incentive Program
For a small or medium-sized business in Quebec or Ontario, SR&ED can represent tens – sometimes hundreds – of thousands of dollars in refundable tax credits. Yet many owners still dismiss eligible work as routine problem-solving, especially when it happens outside a formal laboratory.
Recent federal and provincial changes make 2026 an important year for SMEs to reassess their SR&ED opportunities. The federal program has been enhanced, Quebec has introduced a new consolidated credit, and Ontario companies can still combine federal and provincial incentives. Here is what SME leaders need to know before deciding whether to file or revisit an SR&ED claim.
What SR&ED is, and who may qualify
SR&ED is designed to support work carried out to resolve scientific or technological uncertainty. In simple terms, the program applies when a business tries to develop or improve a product, process, material, device or technology, and the outcome is not obvious to competent professionals in the field.
According to the Canada Revenue Agency’s SR&ED eligibility criteria, eligible work must be conducted in Canada and meet two core requirements: it must aim for scientific knowledge or technological advancement, and it must be carried out through systematic investigation or search by experiment or analysis.
Source: Canada Revenue Agency — SR&ED Eligibility
This means a company does not need a laboratory, a university partnership or a team of PhDs to be considered. A machine shop refining a welding process for a difficult alloy, an agri-food producer testing formulations to improve shelf stability, or a Montreal software firm building a data pipeline where no standard solution works may all deserve an eligibility review.
The key question is not whether the business is “high tech.” The key question is whether the team faced a genuine technological uncertainty and worked systematically to resolve it.
The 2026 rates and eligible expenses, explained simply
On the federal side, Canadian-controlled private corporations can claim an enhanced 35% investment tax credit for eligible SR&ED expenditures, subject to applicable limits and phase-out rules. The spending threshold jumped from $3 million to $6 million, retroactive to tax years beginning on or after December 16, 2024 and the phase-out range for the enhanced rate widened from $10 million to $50 million of taxable capital up to a new $15 million to $75 million range, so more mid-sized firms keep the full 35%. And capital expenditures, such as equipment used for R&D, are eligible again after years of exclusion. Above the limit, or for corporations that are not CCPCs, the credit is 15% and may be partially refundable in some cases.
Eligible expenses include salaries for employees directly involved in SR&ED work, materials consumed or transformed during experimentation, and a portion of eligible subcontractor costs. The exact treatment depends on the facts, the claimant’s structure and the method used to calculate the claim.
Provincial credits can also apply, and this is where Quebec and Ontario differ.
In Quebec, the new tax credit for R&D, innovation and pre-commercialization, also known as the CRIC, applies to eligible corporations conducting eligible R&D or pre-commercialization activities. Revenu Québec states that the basic CRIC rate is 30%, and that it is reduced to 20% for expenditures over $1 million related to R&D or pre-commercialization activities, subject to the applicable rules.
Source: Revenu Québec — Tax credit for R&D, innovation and pre-commercialization
In Ontario, eligible businesses can layer a refundable Ontario Innovation Tax Credit (currently 8% for CCPCs) and a non-refundable Ontario Research and Development Tax Credit (3.5%) on top of the federal credit.
Source: Government of Ontario — Ontario Research and Development Tax Credit
For Quebec and Ontario SMEs, the takeaway is simple: the value of a claim depends not only on whether the work qualifies, but also on how federal and provincial programs interact.
The three mistakes that cost SMEs the most
The first mistake is assuming the work does not count.
Many owners describe eligible experimentation as “just solving problems.” But if the team faced a technical issue with no obvious answer, tested different approaches, learned from failures and refined the solution, the activity may fall within the SR&ED framework.
The second mistake is documenting after the fact.
The CRA places strong emphasis on evidence generated during the work. Strong documentation can include time records, test results, version histories, engineering notes, meeting notes, prototypes, design iterations and failed trials.
The third mistake is treating the claim as an afterthought.
SR&ED claims are tied to tax filing requirements. The CRA’s filing requirements policy states that corporations generally have up to 18 months after the end of the tax year in which the SR&ED expenditures were incurred to file the prescribed information, including Form T661 and the related investment tax credit schedule. Missed deadlines can result in lost credits.
Source: Canada Revenue Agency — SR&ED Filing Requirements Policy
How Quebec and Ontario SMEs can get started
A practical first step is to review the last 18 months of projects and flag anything that involved technical risk, failed attempts, testing, redesign, prototypes or performance limitations.
The second step is to improve documentation going forward. This does not need to be complex. A shared project log, structured meeting notes, test summaries and time tracking can make a major difference if they are created while the work is underway.
The third step is to separate routine improvement from technological uncertainty. Not every difficult project qualifies. Routine troubleshooting, standard customization or applying known methods may fall outside the program. However, when the team cannot determine in advance whether a technical approach will work, and when experimentation is required, the project deserves closer analysis.
For companies that are unsure where their projects fall, working with an experienced SR&ED consultant in Montreal can help identify eligible work before deadlines or missing documentation become an issue.
SR&ED in 2026 deserves renewed attention from Quebec and Ontario SMEs
The federal program has been enhanced, Quebec has introduced the CRIC, and provincial incentives can materially affect the value of a claim.
The opportunity is real, but it rewards companies that identify eligible work early, document it properly and avoid treating the claim as a last-minute tax exercise.
Start by reviewing recent projects through the SR&ED lens. Where technical uncertainty, experimentation and learning are present, the activity may deserve a closer eligibility review.
Juliana Khalil is the founder of Progrès Consulting, a Montreal-based firm that has helped SMEs across Quebec and Ontario maximize their performance since 2003, through two complementary levers: SR&ED tax credits and operational excellence. Juliana and her business partner Elie Khalil, have guided hundreds of successful SR&ED claims since 2003. Juliana holds a degree in mechanical engineering and an MBA, and brings her industry expertise to her SR&ED services; she also focuses on working with SME leaders to build stronger, more efficient organizations. Elie has a Masters degree in Chemistry and an MBA. He brings deep expertise in R&D project management, public and private financing, and the full path of bringing innovation from research to commercialization, the core of what makes an SR&ED claim defensible.
Learn more at progres.ca.
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