Filing an SR&ED claim comes down to two parts: 1) The 3 Key Questions (3Qs) on Form T661 – This is where you explain your R&D work to the CRA. If you get this part right, the rest is just paperwork. 2) The Financial Forms (T661, Schedules 31, 566, 508, 568, etc.) – This is where you report eligible costs (salaries, materials, subcontractors, amount of tax owed, previous tax credits, and grants). This guide will walk you through both—so you can file your claim without hiring an SR&ED consultant.
1. The Core of Your SR&ED Claim: The 3 Key Questions (Form T661-Part 2)
Q1: What Scientific or Technological Uncertainty Did You Try to Overcome?
This is where you explain the problem your R&D work aimed to solve. The CRA wants to see that you faced a technical challenge that couldn’t be solved with existing knowledge.
Explain why existing solutions didn’t work.
Describe the knowledge gap in your industry.
✅ Good Answer Example:
“Our team was developing a new AI model for detecting plant diseases in real time. However, existing AI models struggled to differentiate between early-stage infections and normal crop variations, making them unreliable for large-scale farming. No publicly available research provided a proven solution for this issue.”
🚫 Weak Answer Example:
“We built an AI model to monitor crops more efficiently.” (Too vague—no clear technical challenge.)
💡 Think of it this way: The 3Qs prove why your project qualifies, while the rest of the forms calculate how much you get back.
Q2: How Did You Attempt to Overcome This Uncertainty?
This question proves that your work was systematic, experimental, and iterative—not just routine development.
Outline the hypothesis and tests you performed.
Mention failures and iterations—it’s okay if your experiments didn’t succeed!
✅ Good Answer Example:
“We tested three different deep-learning models (CNN, RNN, and transformer-based architectures) on various datasets. We experimented with feature extraction techniques to improve early-stage disease detection accuracy, adjusting hyperparameters and optimizing model weights. Each iteration was tested against ground-truth field data.”
🚫 Weak Answer Example:
“We trained a machine learning model and improved it over time.” (No mention of specific experiments or problem-solving.)
Q3: What Advancements Did You Achieve or Attempt to Achieve?
Even if your project failed, you still qualify for SR&ED as long as you generated new technical knowledge.
Describe new knowledge gained, even if the project failed.
Highlight improvements in efficiency, accuracy, performance, or reliability.
✅ Good Answer Example:
“We discovered that incorporating infrared imagery significantly improved early-stage disease detection accuracy. This insight could inform future AI-based agricultural solutions and address a major industry gap.”
🚫 Weak Answer Example:
“We successfully built an AI-powered crop monitoring system.” (Too vague—doesn’t show new knowledge gained.)
2. Completing the Rest of T661 (Financial Section)
Once you’ve written strong answers to the 3Qs, the rest of Form T661 is about reporting eligible expenses.
Step 1: Gather Your SR&ED-Eligible Costs
✅ Salaries & Wages – Employees directly involved in R&D (T4, pay stubs, time-sheets).
✅ Subcontractors – Canadian-based R&D work (Invoices, statements of work).
✅ Third-Party Payments – Payments to Canadian universities, colleges, research institutes, or research hospitals (Invoices, research agreements, proof of payment).
✅ Materials – Items used in experiments (Receipts, lab logs).
✅ Overhead Costs – If using the traditional method instead of proxy (55% of eligible salaries).
Step 2: Enter Eligible Expenses and Deductions in T661
📌 Follow these steps to report your SR&ED expenses accurately:
📝 Part 3: Reporting SR&ED Expenditures
✔ Lines 300–315 → Enter salaries and wages for R&D employees.
✔ Lines 320, 325 → Report materials consumed or transformed in R&D.
✔ Lines 340, 345 → Enter subcontractor costs (report the total amount here; the 80% adjustment will be deducted on Line 529).
✔ Line 360 → Enter overhead costs (if using the traditional method; overhead for the proxy method will be calculated in Part 5).
✔ Line 370 → Report third-party payments (Complete Form T1263 and enter the amount here).
📝 Part 4: Adjustments & Deductions
✔ Line 502 → Calculate the proxy method amount in Part 5 and enter it here.
✔ Lines 513–544 → Report deductions, including: grants received, previous year’s SR&ED tax credits, and a 20% adjustment for third-party payments and subcontractor costs.
Have a question?
Send us a message—we’re here to assist!
3. Completing Additional Forms for SR&ED Tax Credits
A. Schedule 31 – Federal Investment Tax Credit (ITC)
✔ Used to calculate your federal SR&ED refund based on eligible expenditures.
B. Provincial R&D Tax Credit Forms (Example: Ontario)
If your business operates in Ontario, you may need to complete:
✔ Schedule 508 – Ontario Research and Development Tax Credit (ORDTC)
✔ Schedule 566 – Ontario Innovation Tax Credit (OITC)
✔ Schedule 568 – Ontario Business Research Institute Tax Credit (OBRITC) (Required if working with third parties like universities or research institutes).
💡 For tax credit forms in other provinces, contact us for details.
4. Submitting Your Claim (T2 Corporate Tax Return)
Once Form T661 and other schedules are complete, you must submit them with your T2 corporate tax return.
✅ Deadline: Must be filed within 18 months of your fiscal year-end.
✅ Filing Method:
- Via Tax Software (if self-filing).
- Through Your Accountant (they don’t need to do the SR&ED report—just the tax return).
5. What Happens After You File? (CRA Processing & Review Timeline)
🔹 Processing Time: The CRA typically processes SR&ED claims within 3–6 months.
🔹 Review Requests: If selected for review, the CRA may request additional documentation to verify your claim.
🔹 Refund Payment: Once approved, your refund is deposited directly into your business account.
💡 Tip: If you’re filing for the first time, the CRA often conducts an interview, which is partly educational. Having solid documentation and well-written 3Qs increases your chances of smooth approval.
6. Common Mistakes to Avoid When Filing SR&ED Yourself
🚫 Weak answers to the 3Qs → Poorly written responses can lead to claim reductions or rejections.
🚫 Incomplete documentation → Without proper records, you risk losing your tax credit if audited.
🚫 Missed deadlines → SR&ED claims must be filed within 18 months of your fiscal year-end to remain eligible.
Final Thoughts: Take Control of Your SR&ED Claim
- The 3Qs are the foundation—get them right, and the rest is just paperwork.
- Filing SR&ED yourself saves you thousands—no need to give away 10-20% to consultants.
- Document properly, answer the 3Qs clearly, and submit your claim with confidence.
Next Up:
👉 Audit-Proofing Your SR&ED Claim In our next post, we’ll show you how to structure your claim properly and how to defend against audits.