Decoding the SR&ED: Software Development Eligibility

As one of the most lucrative R&D funding programs, SR&ED has provided the opportunity to help the Canadian research and tech scene grow and establish themselves as businesses. SR&ED projects resolve a scientific or technological uncertainty, leading to the advancement of the field, in a systematic manner. Operating as a tax incentive, applicants submit a claim and are able to receive deductions on their taxes and even a tax refund.

Recently, software development has become an integral component in both the R&D and the tech sectors and naturally, this has led to an increase in SR&ED claims for these projects. However, many applicants surprisingly find that their software development claims are often rejected by the CRA despite how innovative their product is. In today’s post, we examine the role of software development in technology and when these projects qualify for SR&ED as per the CRA guidelines.

Technology as a Dynamic State

While we commonly use technology and technological products as interchangeable terms, the CRA emphasizes that they are completely different from one another. Technology refers to the implementation of science within a product, process, or material and how it works to deliver a particular feature and/or function. Concurrently as the science advances, how this knowledge is applied, and its downstream effects can also change and that may impact the final output.  As a result, technology is not a physical entity, rather technological products and devices are manifestations of technology.

As per its definition, technology therefore has a limit as to what is known at a particular time – its baseline – and is subject to change and growth. Therefore, identifying the limit of this technological knowledge base and how a project of interest can advance or resolve this, is integral to identifying SR&ED eligibility.

In cases where software is developed from existing knowledge, there is an absence of scientific or technological advancement even if it is considered a novelty to the market. Product development alone and business goals may be present in SR&ED projects but are not determinants for its eligibility. The applicant must articulate the knowledge gap in the field, and how the developed software is a driver for the advancement or resolution of this limitation.

Examples where software development is integral to technological advancement:

  • The development or improvement of techniques and methods to store, search, process, and manage vast collection of data.
  • The development or improvement of infrastructures like internet driven Cloud and distributed computing.
  • The development of solutions that support scaling, reliability, and availability of software-based systems.
  • The development of other technology areas like medical imaging, video transmission, telecommunication, etc.

CRA evaluates SR&ED eligibility on a case-by-case basis and strong technical writing to define the uncertainty, method of action and results is critical for a successful claim.

At Felix SR&ED, we have a team of highly experienced consultants to help you with every step of your SR&ED claim. Contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. to see if your project is SR&ED applicable and elevate your business today!