CRA Workshop – Common Issues in SR&ED Software Claims

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We recently attended a SR&ED National industry engagement technical workshop for companies specifically in the IT and Software Sectors by the Canada Revenue Agency (CRA) SR&ED Directorate. The CRA refers to these companies broadly as Information and Communications Technology (ICT) companies. This session was held by the CRA in September 2018 specifically for ICT project managers and R&D leads, and we came back with a few key takeaways to share.

First off, let’s talk numbers. SR&ED remains the largest and most important corporate tax incentive program in Canada. In 2017 alone, around $2.7 billion in Investment Tax Credits (ITCs) were issued across the country to tens of thousands of businesses. In the Pacific Region, the latest statistics show 56% of ITCs going into the ICT sector. This is a substantial cut of the SR&ED pie and just goes to show how far our knowledge economy has progressed since the early 2000s.

The raison d’être of the program has always been to incentivize corporate R&D efforts, rewarding Canadian innovators who take risks by pushing the envelope of scientific knowledge and state-of-the-art technologies during the course of product development. However, in recent years the CRA has observed a worrisome trend for project submissions made by ICT companies.

Since the requirements for filing SR&ED are often confusing and complex, the CRA provided some guidance on clarification of criteria and working examples. With increasing numbers of new claimants conflating routine product development and business model innovations with SR&ED qualified experimental development and accompanying technological advancement. In other words, companies often confuse new and novel business models, custom development, routine development or general “innovation” as the basis for claiming SR&ED – which is incorrect.

To disambiguate “due diligence” investigation or routine development processes from eligible experimental development in the context of ICT, the CRA has clarified their guidelines and recommendations for industry stakeholders to follow whenever evaluating software work SR&ED eligibility:


  • Business goals (e.g. better user retention, platform monetization) do not demonstrate or communicate a SR&ED intent, though it is possible to extrapolate science/technology objectives if you can articulate the technological implications of the work required to attain said goals.
  • Technology is knowledge, it is not a physical thing or end product. Therefore SR&ED cannot be proven/disproven merely by demonstrating that a good or service was developed, but is rather manifest in the collection of skills, methods, and processes you invent or enhance in the course of development.
  • Not all systematic work or R&D qualifies as SR&ED. Without exception, the five-question SR&ED eligibility methodology as formulated by the CRA must be used to qualify work, and all 5 eligibility questions must be answered in the affirmative to validate your claim.
  • Establishing the technological knowledge base that existed at the start of your project is critical, especially if you are a software development company. These days, it is all too easy for developers to leverage a wealth of public domain resources and commercial-off-the-shelf components (Stack Overflow, open source frameworks and libraries, vendor or community help/support documentation, third-party SaaS integrations) to build out their technology stack or product/service offerings using the path of least resistance, as opposed to true experimental development with inherently uncertain outcomes and consequences. Similarly, successfully applying existing technologies and techniques in a new context, with little to no modification, is not SR&ED.
  • The limitations and shortcomings of existing technologies must be clearly identified and articulated (this means documentation!), by correlating them back to the technological knowledge base.
  • The CRA assumes that you employed or contracted technically competent professionals who are knowledgeable in their chosen fields. They represent a part of your technological knowledge base by way of the expertise they bring to your company. Technical training, education, or research activities to address competency issues or knowledge deficits (i.e. determining what is possible or state-of-the-art in the world) are not SR&ED.
  • After one or more technological uncertainties have been identified, there is a positive effect whereby all subsequent work that is “commensurate with the needs and directly in support of” SR&ED, which would otherwise be ineligible, are claimable. Be sure to properly capture, record, and account for this support work in your claim to receive your full ITC entitlements!
  • More often than not, if you struggle to avoid or imperfectly balance various technological tradeoffs in the course of development (e.g. performance vs. computational efficiency), there is likely a case for SR&ED. Similarly, repeated failures and abandoned approaches are typical indicators of potentially eligible SR&ED work.  
  • To determine extent of eligible work (i.e. how much time and expense) the CRA requires some form of time tracking in place, though they do not mandate specific tools or techniques for doing so. In the absence of explicit time tracking, it is acceptable to use alternate tracking methods that key on time proxy values such as story points, so long as you consistently adhere to whatever methodology you choose.

The main points summarized above at the CRA outreach session ought to be the foundational guide for any SR&ED eligibility evaluation process.

The CRA also provided a helpful Blockchain-based software project example which includes a submission premised on the advancement of specific blockchain concepts/technologies. This blockchain example is particularly relevant and extremely helpful for companies employing cryptocurrency, bitcoin, or distributed ledger technologies. We would be happy to provide you with these examples if you email us at


As specialists in SR&ED for Software and IT companies, ENTAX offers a variety of professional services and solutions (such as SREDtrak for JIRA and SREDBot for Slack) that help improve your SR&ED program success. We also offer free initial consultations on evaluation of your SR&ED project.  

If you are new to SR&ED or need help developing your internal processes for improved CRA compliance, please give us a call, contact us (you can book an appointment online) and we’ll be happy to answer any questions you have.


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