Federal SR&ED tax credit rates and limits

The federal SR&ED incentive is an investment tax credit (ITC) on your qualified SR&ED expenditures, claimed on Form T661 and Schedule 31 of the T2 corporate return. The expenditures are also deductible from income, but for most small and mid-sized companies the credit is the part that matters, because it is largely refundable.

The two rates

35% — the enhanced rate — applies to a Canadian-controlled private corporation (CCPC) on qualified expenditures up to its expenditure limit.

15% — the basic rate — applies to everything above the limit, and to corporations that are not CCPCs.

The expenditure limit

The limit depends on when the tax year began, not when it ended:

Taxable capital is the previous year's figure from Schedule 33, across the whole associated group, and associated corporations share one limit between them. Between the two thresholds the limit falls in a straight line. Above the limit the credit does not stop; it drops to 15%.

What is refundable

The 35% credit on current expenditures — salaries, materials, contracts, the proxy amount — is 100% refundable: paid out in cash even if the corporation owes no tax. Credit earned on capital expenditures, and credit at the 15% rate for a CCPC, is 40% refundable. A corporation that is not a CCPC gets a non-refundable credit, applied against tax owing and carried back three years or forward twenty.

How the qualified figure is built

The rates apply to qualified expenditures, which is the allowable figure after a set of adjustments. The ones that come up on nearly every claim:

• Salaries for the time employees spent directly on the SR&ED work. Only the SR&ED share counts, and salary unpaid 180 days after year end does not count until it is paid.
• The proxy amount. Instead of tracking overhead, most claimants elect the proxy method and add 55% of the SR&ED salary base as a stand-in. It is eligible for the credit but is not a deductible expense. See proxy versus traditional.
• Contracts. SR&ED performed for you by an arm's-length contractor counts at 80% of what you paid. Contracts with a related party do not count at all in your claim; the credit belongs with whoever did the work.
• Materials consumed or transformed in the work, at cost.
• Capital equipment bought after December 15, 2024, which is eligible again after a decade out of the program. Alberta does not follow this; see the Alberta page.
• Government assistance — grants, provincial credits including Alberta's, and IRAP-style contributions — is deducted from the expenditures it funded before the rate applies.

Owners on the payroll: specified employees

An employee who owns 10% or more of any class of the corporation's shares, or is related to someone who does, is a specified employee, and three caps apply to their salary:

• No more than 75% of their time can be counted toward the proxy salary base.
• Their salary in the proxy base is capped at 2.5 times the Year's Maximum Pensionable Earnings (YMPE), prorated by days employed.
• Their salary on the claim itself is capped at 5 times the YMPE, and bonuses and profit-based pay are excluded.

The YMPE is set each year by the Canada Pension Plan:

Worked example

The corporation in Alberta's Example 1 has $1,000,000 of qualified expenditures before assistance, a $5,000,000 taxable capital (so the full $3,000,000 limit for a year beginning in 2022), and earns an Alberta grant of $62,000. The grant is assistance, so:

With the grant, the claim is worth $390,300 in total, and all of it is refundable.

What SREDDY does with this

The rates and limits above are a data table inside SREDDY, keyed by year and verified against CRA's published forms. The engine picks the regime from your year-start date, applies the caps per employee, nets the assistance, and writes down every step. Nothing on this page is typed in by hand; it is generated from that same table, so it cannot say one thing while the claim says another.