SR&ED terms in plain language

The forms use a vocabulary of their own. SREDDY never uses it with you unless you do first; this is the list for when you meet it anyway — on a form, in a letter from CRA, or from your accountant.

SR&ED

Scientific Research and Experimental Development: work done to advance science or technology through systematic investigation. The federal program that gives a tax credit for it goes by the same name, pronounced "shred".

Investment tax credit (ITC)

The federal credit itself. 35% for a CCPC up to its expenditure limit, 15% otherwise. Claimed on Schedule 31.

Form T661

The federal SR&ED claim form. Part 2 holds the project write-ups, Parts 3 to 5 the expenditures and the proxy calculation, Part 4 the qualified figure the credit is worked out on.

Schedule 31

The T2 schedule that turns the T661 figures into the credit and carries it to the return. It takes the current and capital figures separately.

Innovation Employment Grant (IEG)

Alberta's refundable credit on SR&ED done in Alberta: 8% of eligible expenditures up to $4M, plus 12% on the growth over the base amount. Claimed on AT1 Schedule 29. Not an application-based grant, despite the name.

AT1

The Alberta corporate income tax return, filed with Alberta Tax and Revenue Administration (TRA) alongside the federal T2.

CCPC

Canadian-controlled private corporation: a private corporation resident in Canada that is not controlled by non-residents or public corporations. The status that unlocks the enhanced rate and the refund.

Qualified expenditures

The figure the credit rate is applied to: allowable SR&ED expenditures after contract netting, the proxy amount, and the deduction of government assistance. Line 559 of the T661 (557 for current, 558 for capital).

Expenditure limit

The amount of qualified expenditures that earns the 35% rate: $3,000,000 for tax years beginning on or before December 15, 2024, $6,000,000 for years beginning after. Reduced as taxable capital rises; shared across an associated group.

Taxable capital

A measure of a corporation's size from Schedule 33 of the T2 — roughly equity plus debt. The previous year's figure, for the whole associated group, phases out the expenditure limit (from $10M or $15M) and the Alberta grant (from $10M to $50M).

Associated corporations

Corporations under common control, broadly. They share one expenditure limit federally, one $4M limit and one base amount in Alberta, and their taxable capital is added together.

Refundable

Paid out in cash even where no tax is owed. The enhanced-rate credit on current expenditures is fully refundable; credit on capital and at the basic rate is 40% refundable for a CCPC, and not at all for other corporations.

Proxy method

Electing to claim a prescribed proxy amount — 55% of the SR&ED salary base — instead of actual overhead. Chosen per year on Form T661; irrevocable once filed.

Prescribed proxy amount (PPA)

The 55% figure itself. Earns the credit; is not a deductible expense. Line 502 of the T661.

Traditional method

Claiming actual overhead that was directly related to the SR&ED work and incremental to it, with support for each item.

Salary base

The SR&ED share of salaries, excluding bonuses and taxable benefits, that the proxy amount is 55% of. Line 818.

Specified employee

An employee who owns 10% or more of any class of shares, or is related to someone who does. Their salary is capped at 5 times the YMPE on the claim and 2.5 times in the proxy base, and no more than 75% of their time counts toward the proxy base.

YMPE

The Year's Maximum Pensionable Earnings under the Canada Pension Plan, set annually — $71,300 for 2025. The specified-employee caps are multiples of it.

Arm's length

Unrelated parties dealing independently. An arm's-length contractor's SR&ED work counts at 80% of the payment; work by a related (non-arm's-length) party does not count in your claim.

Government assistance

Grants, provincial credits, IRAP contributions and similar public money received or receivable for the SR&ED work. Deducted from the expenditures before the credit is calculated; the Alberta grant is assistance for federal purposes.

Base amount

In Alberta, the average of the two previous years' Alberta eligible expenditures. The 12% part of the grant applies only above it.

Grind

Shorthand for a phase-out: the straight-line reduction of the expenditure limit or the Alberta grant as taxable capital rises.

Reporting deadline

The last day a T661 can be filed for a tax year: 18 months after year end. Alberta's Schedule 29 must be received by TRA within 21 months. Neither can be extended.

Lines 242, 244, 246

The three project write-ups on the T661: the uncertainty, the work done in the year, and the advancement. 350, 700 and 350 words.

Claim preparer

A person or firm paid to prepare or help prepare the T661, who must be named in Part 9 of the form. Software you use yourself is not a claim preparer; a consultant is.