What engineering work may qualify?
Engineering projects may warrant further review where the team could not determine in advance whether or how a technical objective could be achieved.
Potentially eligible work may include:
Custom mechanical systems
Design and testing of specialized machinery, components, tooling, or equipment where physical constraints, performance requirements, or material limitations cannot be addressed through standard design methods.
Electrical and hardware development
Work involving custom circuits, embedded systems, control hardware, power consumption, thermal performance, signal integrity, or other technical constraints that require iterative testing.
Structural and civil engineering
Development of non-standard structural, foundation, geotechnical, or load-bearing solutions where conventional methods do not provide a clear or reliable answer.
Environmental and process systems
Work involving waste treatment, water purification, emissions reduction, process controls, or pilot systems where performance must be established through testing and refinement.
Materials and product performance
Testing undertaken to address uncertainty involving durability, strength, corrosion, thermal behaviour, chemical resistance, fatigue, or other material characteristics.
Prototypes and pilot systems
Prototype development may qualify where the prototype is used to investigate technological uncertainty, test competing approaches, or establish whether a proposed design can work.
The existence of a prototype alone is not enough. The underlying experimental work is what matters.
Routine engineering work generally does not qualify
Engineering work does not qualify simply because it requires professional judgment, detailed calculations, or a custom deliverable.
Routine work can include:
- Applying established codes and standards
- Standard design calculations
- Conventional drafting and modelling
- Routine product customization
- Ordinary testing for quality control
- Installation and commissioning
- Troubleshooting where the cause and solution are readily identifiable
- Replication of an existing design
- Work performed solely to meet commercial or regulatory requirements
A larger contract may contain both eligible and routine activities. The claim should distinguish the experimental development from the ordinary engineering work.
How engineering SR&ED eligibility is assessed
A potentially eligible project generally involves three connected elements.
Technological uncertainty
The team could not determine how to achieve the technical objective using available knowledge, established methods, or standard engineering practice.
Systematic investigation
The engineers formed possible solutions, tested them, reviewed the results, and changed the design or approach based on what they learned.
Technological advancement
The work generated new knowledge or capability for the company, even where the final design did not perform as intended.
Failed tests and abandoned approaches can still be relevant when they contribute to resolving the technological uncertainty.
Salaries are often a significant part of an engineering SR&ED claim
For many engineering firms, salaries and wages represent a substantial portion of the eligible expenditures.
This can include time spent by:
- Professional engineers
- Engineering technologists and technicians
- Designers involved in experimental development
- Project managers who directly support the eligible work
- Founders who perform qualifying technical work
- Employees involved in prototype construction or experimental testing
The full salary of each employee is not automatically eligible. The claim should reflect the portion of time connected to qualifying SR&ED activities.
We review employee responsibilities, payroll records, project timelines, test records, drawings, and other available information to determine a supportable allocation.
Materials, prototypes, and contractors
Engineering claims may also include expenditures beyond salaries.
Materials
Materials consumed or transformed during experimental development may qualify.
This can include materials used in prototypes, test assemblies, trial production, destructive testing, or other eligible work. Materials incorporated into a commercial product or recoverable after testing may require different treatment.
Canadian contractors
A portion of amounts paid to arm's-length Canadian contractors for SR&ED work performed on the claimant's behalf may be eligible, subject to the applicable rules.
Contracts, invoices, project records, and the location where the work was performed should be reviewed before including these costs.
Prototype and testing costs
Not every prototype or test cost is eligible. The expenditure must be connected to the systematic investigation of a technological uncertainty.
Contract terms can affect who claims the SR&ED
Engineering firms often perform development work for clients, which can make entitlement to the SR&ED claim less straightforward.
The contract may affect whether the engineering firm or the client is entitled to claim the expenditures. Important considerations can include:
- Who requested and directed the work
- Who bore the financial risk
- Who owned the resulting intellectual property
- Whether the work was performed on the claimant's behalf
- How the contract describes the services and deliverables
- Whether government assistance or other funding was received
We review master service agreements, statements of work, purchase orders, and related documentation to identify potential entitlement issues before the claim is prepared.
Contract language should be reviewed together with how the project was actually carried out. A single clause does not always determine the result.
How we prepare an engineering SR&ED claim
1. Identify potential projects
We discuss the engineering work completed during the year and identify projects involving technical uncertainty and experimentation.
2. Interview the technical team
We speak with the engineers, technicians, founders, or other personnel who understand the work.
The discussion focuses on the technical limitations, attempted solutions, testing, failures, and changes in approach.
3. Review contracts and entitlement
Where work was performed for a client or with outside contractors, we review the relevant agreements and the facts surrounding the project.
4. Prepare the technical description
We organize the project history into a clear explanation of the technological uncertainty, systematic investigation, and advancement.
5. Calculate qualifying expenditures
We review salaries, materials, contractor costs, and related accounting records to calculate the expenditures connected to the eligible work.
6. Coordinate the claim and corporate tax return
The SR&ED schedules and tax credits are prepared consistently with the corporation's year-end accounting and T2 return.
7. Support CRA questions
Where CRA requests additional information or reviews the claim, we help prepare the response and explain the technical and financial basis of the filing.
New to SR&ED? Our plain-English guide What is SR&ED? explains how the program works, who can claim, and what to expect from a CRA review.
