Once you’ve identified SR&ED-eligible work, the next step is determining which costs associated with that work can be claimed.

Not all costs related to SR&ED projects qualify. Understanding the eligible expenditure categories helps you maximize your claim while staying compliant with CRA requirements.

The Main Expenditure Categories

Salaries and Wages: The largest component of most claims. Compensation for employees directly engaged in SR&ED work, including gross salaries, bonuses, taxable benefits, and employer contributions to pension plans and CPP/QPP. You must track and allocate employee time between SR&ED and non-SR&ED activities.

Materials Consumed: Raw materials, supplies, and consumables used or transformed during SR&ED work. These are materials consumed, transformed, or rendered worthless during experimentation—not materials incorporated into products for sale. Examples include test samples, chemicals consumed during R&D, and prototyping materials that won’t be sold.

Subcontractor Costs: Payments to arm’s-length Canadian contractors performing SR&ED work. Only 80% of payments to arm’s-length contractors are eligible (CRA assumes 20% represents overhead and profit). The contractor must be at arm’s length, work in Canada, and perform eligible SR&ED.

Third-Party Payments: Payments to approved institutions (Canadian universities, colleges, research organizations) for SR&ED performed on your behalf. Unlike contractors, these are 100% eligible.

What Doesn’t Qualify

Capital expenditures (equipment, machinery purchases) generally aren’t eligible as current expenditures. Costs related to non-eligible work, general corporate overhead, sales and marketing, financing costs, legal and accounting fees, patent costs, and foreign expenditures don’t qualify.

Maximizing Eligible Expenditures

Identify all direct support staff including lab technicians, data analysts, and CAD designers directly performing SR&ED work.

Capture consumed materials including materials from failed experiments, prototyping materials, and destroyed test samples.

Document subcontractor work thoroughly with contracts describing SR&ED work, status reports, and confirmation of arm’s-length status.

Key Takeaways

• Main categories: salaries, materials, subcontractors, third-party payments

• Materials must be consumed during SR&ED—not incorporated into sold products

• Only 80% of arm’s-length contractor costs qualify

• Strong documentation is essential for all expenditure claims

The Bottom Line

Maximizing your SR&ED claim requires understanding what costs qualify and maintaining strong documentation. The difference between a well-documented claim and a poorly prepared one can be hundreds of thousands of dollars.

Note: For specific advice about your situation, consult with Carnegie.

Get in Touch Today

Email us to check your eligibility — info@carnegiecapitalgroup.com