Canada’s SR&ED program remains one of the most well known and valuable incentives available to companies investing and engaging in R&D. Each year, approximately 22,000 businesses recover a meaningful portion of their development costs through investment tax credits, helping support continued innovation and growth. Despite this, many companies are surprised when technically legitimate projects are denied or reduced during CRA reviews. In most cases, the issue is not that the work lacked complexity or innovation. The problem usually lies in how the work is described, supported, and aligned with the program’s requirements.

1. Commercial Innovation and Technological Advancement

A common reason strong projects are rejected is confusion between commercial innovation and technological advancement. A project may be new to a company or even new to the market, but that alone does not make it eligible for SR&ED. The program is focused on resolving technological uncertainty rather than rewarding business innovation or product novelty. Companies often describe the development of a new product or feature without clearly explaining the technical limitations that existed at the outset, or why the solution could not be achieved using existing knowledge. When the work appears to follow established engineering practices or known methods, reviewers may conclude that the outcome was predictable, even if the project required significant effort or investment.

2. Emphasis on Results Over Process

Another issue arises when claims emphasize results instead of the process used to achieve them. SR&ED is fundamentally concerned with systematic investigation or experimentation. Reviewers expect to see evidence that alternatives were considered, hypotheses were tested, and conclusions were reached through iteration and analysis. Many companies create claims that focus on the final outcome or successful implementation, which can unintentionally suggest that the path forward was clear from the beginning. In reality, failed attempts and unexpected results often provide the strongest support for eligibility because they demonstrate that uncertainty genuinely existed and required experimentation to resolve.

3. Documentation

Documentation also plays a significant role in claim outcomes. Companies frequently attempt to reconstruct technical narratives at year end, long after development activities have taken place. While the program does not require formal research records, it does expect credible evidence that supports the work as it occurred. Documentation prepared after the fact often lacks detail around technical challenges, decision making, and iterative testing. By contrast, ordinary project artifacts such as engineering notes, testing results, version histories, and internal communications can provide strong support when they reflect the progression of the work in real time. The goal is not to create additional administrative burden, but to ensure that the experimentation process can be demonstrated if reviewed.

4. Disconnect in Technical Narrative and Cost Claimed

Claims may also encounter challenges when there is a disconnect between the technical narrative and the costs being claimed. Even where eligible work exists, CRA reviewers assess whether the expenditures reasonably align with the described activities. Issues arise when time allocations are overstated, when commercial or production work is included alongside development activities, or when there is insufficient support connecting employee effort to experimental work. A clear relationship between the technical story and the financial claim helps reviewers understand how resources were applied to resolving technological uncertainty.

5. No Strong Technical Narrative

Another underlying factor is that some claims are approached primarily as tax filings rather than focusing on strong technical narratives. While technical narratives must be included in an SR&ED claim, strong SR&ED claims clearly explain the problem being addressed, why it created uncertainty, what work was undertaken to resolve it, and what knowledge was gained as a result. When claims focus too heavily on financial outcomes or business objectives, the technological aspects of the work can become unclear. Reviewers must be able to follow the progression of the technical challenge from beginning to end in order to assess eligibility with confidence.

6. Integrating the Program with the Development Process

Companies that achieve consistent outcomes under SR&ED tend to integrate the program into their development process rather than treating it as a year end exercise. Technological uncertainty is identified early, experimentation is naturally captured through existing workflows, and both successful and unsuccessful attempts are recognized as part of the development cycle. When documentation and financial reporting align with the actual work performed, the claim becomes easier to review and defend.  We’ve developed a specific process called the “Innovation Connection program”, to create a workflow that aligns with this process, ultimately leading to reduced client time, maximized claims and a highly protected SR&ED claim defensible in the event of a CRA review.

Most rejected or reduced SR&ED claims are not the result of poor research and development. They reflect gaps between the work performed and how that work is communicated during the claim process. By understanding what reviewers are looking for and structuring projects accordingly, companies can improve both the quality and predictability of their claims. For organizations investing heavily in development, approaching SR&ED as an extension of the R&D process rather than a compliance exercise often leads to stronger outcomes over time.

Key Takeaways:

• SR&ED eligibility is based on resolving technological uncertainty, not commercial innovation or product novelty.
• Claims should clearly demonstrate experimentation, iteration, and the process followed to reach conclusions.
• Documentation created during development is far more effective than documentation prepared after the fact.
• Technical descriptions and claimed costs must align and be supported by reasonable time allocation and activities.
• Strong claims tell a clear technical story that explains the problem, the uncertainty, the work performed, and the knowledge gained.
• Companies that integrate SR&ED into their normal development process tend to achieve more consistent outcomes.

For more information regarding our innovation connection program: Contact Us