Wondering if your startup qualifies for SR&ED tax credits? You’re in the right place. Many Canadian founders assume SR&ED is just for massive tech firms or scientific labs—but the truth is, if you’re building something innovative, there’s a good chance you’re eligible.

This guide breaks down SR&ED eligibility in startup-friendly terms. You’ll learn who qualifies, what types of work count, and what to do next to unlock valuable funding.

1. Who Qualifies for SR&ED? (Startup-Friendly Breakdown)

The Scientific Research & Experimental Development (SR&ED) tax credit is open to Canadian businesses, but certain eligibility requirements apply.

✅ Who is Eligible for SR&ED?

• Canadian-Controlled Private Corporations (CCPCs): You can get up to 35% refundable tax credit on your first $3M in R&D spend.
  
• Other Corporations: Foreign-owned or public companies still qualify, but get a 15% non-refundable credit.
  
• You Must Be Incorporated in Canada: Sole proprietors and unincorporated freelancers don’t qualify.
  
• Pre-Revenue Startups Welcome: You don’t need to be profitable—refunds can go straight to your bank account.

💡 Example: A bootstrapped AgTech startup in Ontario can claim both federal and provincial SR&ED credits—even before their first customer.

🚫 Who is NOT SR&ED Eligible?

• Sole Proprietors or Unincorporated Businesses
• Non-Canadian Companies
• Non-profit Organizations and Charities

💡 Example: A small AgTech startup in Ontario, incorporated as a CCPC, can claim both federal and provincial SR&ED credits, even if they haven’t yet turned a profit.

2. Understanding SR&ED Eligibility: The “Why” and “How” Factors

To qualify for SR&ED eligibility, your project must check two boxes:

🔹 The “Why”: Are You Solving a Technical Problem?

If you’re tackling a challenge with no obvious solution—like testing a new algorithm or solving a hardware problem—you’re likely on the right track.

✅ Eligible Example: Building an AI-powered crop monitoring tool that doesn’t exist yet.
❌ Not Eligible: Just applying off-the-shelf AI tools to an existing process.

🔹 The “How”: Are You Using a Systematic R&D Process?

The Canada Revenue Agency (CRA) wants to see real experimentation:

• Define the tech challenge
  
• Build a hypothesis
  
• Run experiments or iterations
  

✅ Eligible Example: Testing multiple machine learning models to improve speech recognition in noisy environments.

❌ Not Eligible Example: Routine debugging or minor software updates.

💡 Tip: If you’re exploring unknowns and tracking results, that’s real R&D—and it’s probably SR&ED eligible.

3. What Kind of Work Qualifies for SR&ED?

The CRA recognizes three categories of work under SR&ED:

🧪 Basic Research

Advancing knowledge without a direct commercial goal.
Example: Studying plant DNA for resistance to drought.

⚙️ Applied Research

R&D with a real-world problem to solve.
Example: Developing bio-based fertilizer to improve crop yield.

🛠️ Experimental Development (Most Common for Startups)

Improving or creating new tech, processes, or products.
Example: Designing lightweight battery packs for EVs.

🔧 Support activities (testing, coding, data analysis) count too—if they directly support the R&D.

4. What Industries Are Eligible for SR&ED?

It’s not just for software or biotech. Here are real examples of SRED eligibility across industries:

• Software & AI: Custom ML models, cybersecurity platforms
  
• AgTech: Sensor networks, drone automation
  
• Manufacturing: Robotics, materials testing
  
• Biotech & Medtech: Drug development, diagnostics
  
• Clean Energy: Battery tech, solar panel efficiency
  
• Media & Games: Real-time animation systems
  
• LegalTech: Contract analysis, compliance engines
  
• EdTech: VR-based medical simulations
  
• Fashion & Textiles: Sustainable fabrics, AI design tools
  
• Consumer Products: Smart packaging, self-cooling cans

These are just examples. If you’re solving hard technical problems with a clear process—you probably qualify.

5. Common SR&ED Eligibility Myths (Debunked)

🚫 “SR&ED is only for tech companies.”
→ Wrong! It applies to agriculture, manufacturing, software, biotech, cleantech, and more.

🚫 “My business is too small to qualify.”
→ Pre-revenue startups and even solopreneurs can be eligible.

🚫 “We didn’t invent anything new, so we don’t qualify.”
→ You don’t need a breakthrough invention—improving an existing technology or process counts.

🚫 “We failed, so we can’t apply.”
→ Failed R&D still qualifies if the approach was systematic

🔥 Start Your SR&ED Journey

If you’re developing new tech or improving how things work, don’t miss out on SR&ED eligibility. Learn on how to DIY your SRED.

✅ Want to check your SR&ED eligibility? Contact us today to learn about self-served free assessment!

👉 Need help filing your SR&ED claim? We offer DIY guides and services to maximize your refund.

Next Up:

👉 How Much Can You Get? Our next blog post will break down SR&ED refund calculations so you know exactly how much money you could be getting back!