What manufacturing work may qualify?
A project may warrant further review where the company cannot determine in advance whether or how a technical objective can be achieved using standard industry practice.
Potentially eligible work may include:
Process development and improvement
Testing changes to production methods, line speeds, temperatures, pressure, feed rates, cycle times, sequencing, or other operating parameters where the outcome cannot be predicted using established methods.
New or modified materials
Work undertaken to address uncertainty involving strength, durability, adhesion, corrosion, heat resistance, chemical behaviour, consistency, or compatibility with an existing process.
Custom tooling and equipment
Designing and testing custom dies, moulds, fixtures, jigs, machinery, or production equipment where standard solutions cannot meet the required technical performance.
Waste and defect reduction
Experimental work aimed at reducing scrap, defects, rework, variability, or material loss where the underlying technical cause is uncertain and competing approaches must be tested.
Automation and system integration
Work involving controls, sensors, robotics, machine communication, synchronization, or integration of legacy and modern equipment where technical limitations require experimentation.
Scale-up and pilot production
Moving from a prototype or small batch to commercial production may create uncertainty involving consistency, throughput, quality, heat transfer, material behaviour, or equipment performance.
Scale-up work does not qualify automatically. The project must involve technological uncertainty and systematic investigation.
Routine manufacturing work generally does not qualify
Manufacturing work does not qualify simply because it is difficult, expensive, or performed for the first time by the company.
Routine work can include:
- Normal production runs
- Standard equipment installation
- Ordinary maintenance and repairs
- Routine quality-control testing
- Changes based on known supplier specifications
- Standard customization for a customer
- Production adjustments with an established solution
- Work performed only to reduce cost or meet a delivery deadline
- Regulatory testing that does not address technological uncertainty
- Replication of an existing product or process
A broader manufacturing project may include both eligible experimental work and ordinary commercial production. The claim should distinguish between them.
How manufacturing SR&ED eligibility is assessed
A potentially eligible project generally involves three connected elements.
Technological uncertainty
The company could not determine how to achieve the technical objective using available knowledge, established production methods, or standard engineering practice.
Systematic investigation
The team developed possible solutions, carried out trials, reviewed the results, and changed the process, design, material, or tooling based on what was learned.
Technological advancement
The work produced new technical knowledge or capability for the company, even if the final result was unsuccessful or the project was abandoned.
Failed batches and rejected approaches can still be relevant where they contribute to resolving the underlying technological uncertainty.
Salaries, materials, and production trial costs
For many manufacturers, employee salaries and wages are a substantial part of the SR&ED claim.
Potentially eligible time may include work performed by:
- Engineers
- Engineering technologists and technicians
- Production supervisors
- Machine operators involved in experimental trials
- Toolmakers and skilled trades
- Quality personnel involved in experimental testing
- Founders or owners who directly perform eligible technical work
- Employees who construct or test prototypes
The full wages of each employee are not automatically eligible. The claim should reflect the portion of time connected to qualifying SR&ED activities.
We review payroll records, employee responsibilities, production records, trial dates, and other available documentation to determine a supportable allocation.
Materials consumed during production trials
Manufacturing claims often include materials used during experimental development.
Potentially eligible materials may include:
- Raw materials consumed during trial runs
- Components incorporated into experimental prototypes
- Materials destroyed during testing
- Test batches that cannot be sold or reused
- Consumables used directly in qualifying experiments
The treatment depends on how the material was used and whether it was consumed or transformed during the SR&ED work. Materials incorporated into saleable products or recovered after testing may require different treatment.
Production trials may involve more than material costs
The financial cost of a production trial can extend beyond the raw materials consumed. Depending on the facts and the method used to calculate the claim, relevant expenditures may include plant-floor labour for setting up equipment, operating trial runs, recording results, and inspecting output; custom tooling, test fixtures, dies, or moulds used during the investigation; and a portion of amounts paid to arm's-length Canadian contractors for eligible work performed on the company's behalf.
Eligible overhead may be calculated using the prescribed proxy method or the traditional method, depending on the circumstances. Utility costs and general plant costs are not automatically claimed simply because a production line was used. The calculation must follow the applicable SR&ED rules.
How we prepare a manufacturing SR&ED claim
1. Identify potential projects
We discuss the production changes, technical problems, trial runs, prototypes, and process improvements undertaken during the year.
2. Interview the technical and production teams
We speak with the engineers, operators, supervisors, owners, or other employees who understand the work.
The discussion focuses on the technical limitations, attempted solutions, trial results, failures, and changes in approach.
3. Review production records
We examine available batch records, test reports, process data, scrap reports, drawings, and other documentation supporting the experimental work.
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, plant-floor labour, materials, contractor costs, and related accounting records to calculate the expenditures connected to 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 further information or reviews the claim, we help prepare the response and explain the technical and financial basis of the filing.
Common manufacturing SR&ED issues
Claims can be harder to support when:
- Routine production is included without separating experimental trials
- Cost savings are presented as the technological objective
- The technical uncertainty is not clearly identified
- Trial results and failed approaches are not documented
- Plant-floor labour is estimated without supporting records
- All material waste is treated as eligible
- Commercial production costs are mixed with experimental costs
- The description focuses only on the successful final process
We help manufacturers prepare an accurate claim based on the experimental work actually performed and the records available.
Beyond the federal program, most provinces offer additional R&D credits — our guide to SR&ED provincial tax credits explains what is available and how the credits combine with a federal claim.
