T4088(E) Rev. 20

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In this guide, we use plain language to explain the most common tax situations. If you need additional information, we provide references to the Income Tax Act, the Income Tax Regulations, interpretation bulletins, Tax Folios, and SR&ED policy documents at the bottom of each topic.

La version française de cette publication est intitulée Guide pour le formulaire T661, Demande pour les dépenses de recherche scientifique et développement expérimental (RS&DE).

What's new?

We have revised the guide to reflect the changes made to the T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim Form, to ensure that the content is consistent with the SR&ED policy papers, and SR&ED Program forms and publications. We have added in Part 6, box 758 “Overhead and other expenditures in the tax year.” See the description in this guide under box 758. This information is required for tax year ends after 2020, and optional for tax year ends before 2021.

Before you start

This guide contains information and instructions on how to complete Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim. To ensure that your SR&ED expenditures are calculated correctly, it is important that you carefully review the information in the guide.

For partnerships, follow the guide. And also, because there are special requirements that apply to partnerships that sometimes differ, please refer to the "Partnerships" section of this guide.

The SR&ED legislation and the program's policy documents and other technical publications, which are referenced, have precedence over the guide. The guide is meant as an aid to completing the form.

Internet access

You can find SR&ED program information, policy documents, publications, Form T661 with links to the online guide, and other useful information on our website at canada.ca/taxes-sred under SR&ED forms and publications.

Advisory services and tools

We provide a number of free advisory services to increase the awareness of the program requirements and to assist SR&ED claimants in filing their SR&ED claims.

Pre-Claim Consultation
The Pre-Claim Consultation is a free on-demand service that potential claimants can use to find out whether their work qualifies for scientific research and experimental development (SR&ED) tax incentives before they submit an SR&ED claim.
Pre-Claim Review
The Pre-Claim Review is a free, on-demand review. It gives businesses a determination on how much of their research and development (R&D) work is eligible and what expenditures qualify for the SR&ED tax incentives, before they file their claim.
First-Time Claimant Advisory Service
First-Time Claimant Advisory Service (FTCAS) is a free in-person service that provides first-time SR&ED claimants with an opportunity to meet with CRA staff.
Information seminars and webinars
Our free information sessions give you an overview of the program, discuss the eligibility criteria and which expenditures qualify, explain how to file an SR&ED claim, and more.
SR&ED Self-Assessment and Learning Tool
The Self-Assessment and Learning Tool (SALT) helps claimants better understand the eligibility requirements of the SR&ED program.
Resolving Claimants' SR&ED Concerns
The Canada Revenue Agency (CRA) is committed to providing fair treatment to all claimants of the SR&ED program. If you do not agree with the findings of the review of your SR&ED claim, or if you have any concerns with how the review was conducted, you are encouraged to take specific steps to resolve your concerns.

You are encouraged to use these services, which are available through CRA tax services offices across the country. For more information, visit our website at canada.ca/taxes-sred under Services and tools and select the document called "Resolving Claimant's SR&ED concerns".

The SR&ED Program provides two incentives

1. You can deduct SR&ED expenditures to reduce your income for tax purposes in the current tax year or carry these expenditures forward to reduce your income for tax purposes in future tax years.
2. You can receive an SR&ED investment tax credit (ITC) on qualified expenditures in the form of a cash refund or a reduction of tax payable or both. An unused SR&ED ITC can be carried back 3 years or carried forward 20 years.

Filing requirements

To access the two incentives for your SR&ED work performed, you must complete and submit the following forms containing the prescribed information by your SR&ED reporting deadline:

1. Form T661; and
2. Schedule T2SCH31 for corporations or Form T2038(IND) for individuals, as applicable.

The above forms and schedule should be filed with your income tax return for the year. If you are amending any of the above forms and schedules and want to file electronically, they must be filed with an income tax return for the year.

A claimant's SR&ED reporting deadline is the day that is 12 months after the filing due date of the income tax return for the year. This means that corporations have 18 months and individuals have 17.5 months from the end of the tax year in which the expenditures were incurred to file an SR&ED claim.

If you do not report an expenditure on Form T661 by the SR&ED reporting deadline, you will not be entitled to receive the SR&ED incentives for that expenditure. Due to the Covid-19 pandemic, the Minister has extended certain SR&ED reporting deadlines that occurred from March 13, 2020 until December 30, 2020.

A corporation exempt from tax that incurs SR&ED expenditures has to file Form T661 on or before the due date for filing its return of income for the year or it will be subject to a penalty. The filing due date is six months after the end of the corporation's tax year.

If you use CRA-approved commercial software to prepare your income tax return, you can submit your SR&ED claim electronically with your income tax return. If you do not have access to CRA-approved commercial software, you can use forms and schedules printed off the CRA website to file your SR&ED claim.

References: Income Tax Act subsection 37(11), 37(11.1), 37(12), paragraphs 127(9)(m) and 149(1)(j); SR&ED Filing Requirements Policy

To expedite the processing of your SR&ED claim

• Complete Form T661 and Schedule T2SCH31 or Form T2038(IND), as applicable, containing all the prescribed information. Ensure all items listed in Part 8 – Claim checklist of Form T661 have been completed and filed with your income tax return by the reporting deadline. Filing a form or schedule with missing information, or using a previous version of Form T661 to file a current-year claim, may delay the processing of your claim, and some or all of your expenditures may be denied if the relevant prescribed information is not included on the form by the SR&ED reporting deadline.
• For a partnership, Form T661 should be filed with the partnership information return no later than 12 months after the earliest of all filing due dates for the return of income of the members for the tax year in which the partnership's fiscal period ends. Each member would then be able to meet the deadline to claim the SR&ED investment tax credit(ITC) allocated to them.
• Tick the appropriate box on your income tax return requesting a direct deposit of your refundable SR&ED investment tax credit (ITC), if applicable.
• File your SR&ED claim by the SR&ED reporting deadline at the appropriate tax centre. A list of the CRA's tax centres is provided in the T1 and T2 guides.
• Respond in a timely manner if we contact you for more information.
• Complete Part 9 to include claim preparer information. If a claim preparer did not prepare or assist in the preparation of Form T661 complete only lines 935, 970, and 975 in Part 9.
• Form T661 and Schedule T2SCH31 or Form T2038(IND) should be filed with your income tax return for the year. If you are amending any of these forms and schedules and want to file electronically, they must be filed with an income tax return for the year.

SR&ED co-ordinating tax services offices (CTSOs)

If you need information about your claim or our program, you can contact any of our CTSOs. A list of SR&ED CTSOs is also included at the end of this guide.

Classified Projects

If a federal agency has designated any of your projects as "classified information" for national security reasons, follow these instructions:

• Complete all parts of Form T661, but use a separate sheet for the project information requested in Section B of Part 2. The rest of Part 2 must be completed on the form.
• Send a letter to the following address:
  Canada Revenue Agency
  Scientific Research and Development Program
  875 Heron Road
  Ottawa ON K1A 1A2
• In your letter, explain that certain project information, which is classified, is available on request.
• Include a copy of the letter with your income tax return, along with Form T661. Do not include the separate sheet containing the information for Section B of Part 2 for the classified projects with your claim, but ensure you keep a copy for your records.

Provincial and territorial tax incentives

Provincial and territorial tax incentives may also be available for your SR&ED expenditures. At the time the guide was published, the following provinces and territory offered a tax credit program for R&D:

• British Columbia
• Manitoba
• New Brunswick
• Newfoundland and Labrador
• Nova Scotia
• Ontario
• Quebec
• Saskatchewan
• Yukon

Contact your provincial or territorial tax authority to determine whether such incentives are available. Also, visit our website at canada.ca/taxes-sred and under Most requested, select Summary of provincial and territorial research and development (R&D) tax credits.

How to complete Form T661 – Line-by-line explanations

This guide explains how to complete each line on Form T661. We recommend that you read the explanations as you fill in the form. Round all amounts to the nearest dollar.

Part 1 – General information

Line 010 – Name of claimant

Enter the registered business name. If the claim is filed for a partnership, enter the name of the partnership.

Tax year

Enter the beginning and end dates of the tax year for which you are submitting the claim.

Business identification

Enter the identification number that pertains to your business. If you are a partnership and have a business number (BN), enter the business number. Make sure that you enter all 15 characters of the BN.

Line 050 – Number of projects

Enter the total number of projects you are claiming for this tax year.

Lines 100 to 125 – Contact information

Lines 100 to 110 – Provide the name, telephone number, and fax number of the person best suited to provide the supporting financial information for this claim.

Lines 115 to 125 – Provide the name, telephone number, and fax number of the person best suited to provide the supporting technical information for the projects claimed.

Lines 151 to 157 – Partnership information

Refer to the "Partnerships" section of this guide.

Part 2 – Project information

You must complete this part for each project claimed for the tax year. If you wish, you can choose to submit this part for only the 20 largest projects in dollar value, at the time of filing.

However, the CRA may request this part for some, or all, of the remaining projects at a later time. Failure to provide this information will result in the disallowance of the expenditures claimed for the projects as SR&ED expenditures.

Purpose

In this part of Form T661 you are asked to provide, on a project-by-project basis, information that establishes the nature of your scientific research and experimental development (SR&ED) work. This information enables the CRA to carry out an initial review of the work that you are claiming. This initial review helps to establish, with reasonable confidence, how the claimed work meets the SR&ED eligibility requirements. Establishing this confidence may allow the CRA to expedite the review and process the claim in a timely manner.

We recommend that personnel who are familiar with the scientific or technical content of the work you are claiming prepare this part of Form T661.

SR&ED Project

An “SR&ED project” must fall within the definition of SR&ED contained in the Income Tax Act. An SR&ED project comprises a set of interrelated activities that collectively are necessary to resolve the scientific or technological uncertainties in the attempt to achieve the specific scientific or technological advancements defined for the project. This is pursued through a systematic investigation or search in a field of science or technology by means of experiment or analysis performed by qualified individuals.

When you frame your descriptions of the claimed work, we recommend that you follow the above characteristics in defining your SR&ED project. The CRA determines the eligibility of any project at the level necessary to properly recognize all the work required for the attempted scientific or technological advancement, including support work.

References: Income Tax Act subsection 248(1); Eligibility of Work for SR&ED Investment Tax Credits Policy

Advantages of providing clear and concise information

You must carefully consider your answers to the questions in this part in order to make them clear, concise, and to the point. This is your first opportunity to present the claimed work in the context of the SR&ED program. Clear and concise descriptions of the work that directly address these questions will play an important role in the CRA deciding if further review of the claimed activities is needed. This could reduce or even eliminate the need for you to submit further information and, as a result, enable the CRA to expedite your claim. Descriptions that are vague, unnecessarily lengthy, or fail to address the questions in technical terms will increase the likelihood of a further review.

There is a limit to the number of words you can use when responding to the questions in Section B. Therefore, the answers should concentrate on the technical facts and should be in the technical language and style of those who did the actual work, or who understand and are familiar with the work.

Section A – Project identification

In this section you must provide information on the project that will help the CRA to get an understanding of the nature and scope of the SR&ED work you have performed.

Line 200 – Project title

Enter the title of the project. If you have a title and an identification code for the project, enter both.

Line 202 – Project start date

Enter the start date of the SR&ED project. The start of the project is defined as the point at which scientific or technological uncertainties are identified and the work to resolve those uncertainties commences.

Line 204 – Completion date

Enter the completion date or expected completion date of the SR&ED project. The completion date of the project is defined as the point at which you:

• achieved the scientific or technological advancement by resolving the associated uncertainties;
• determined that the scientific or technological uncertainties cannot be resolved; or
• terminated the project for any reason.

It is important to understand that the eligibility of the work also ceases at that point.

If your project is ongoing at the end of the tax year, enter the expected completion date. If a project is temporarily stopped and is expected to resume at a future date, enter the date you expect the project to be completed. If you do not know when you are expected to resume the project, enter the date the project temporarily stopped.

Line 206 – Field of science or technology code

From the table in Appendix 1, select the field of science or technology that best describes the primary field in which the SR&ED project was attempting to achieve an advancement.

Note that the primary field in which the SR&ED project was attempting to achieve an advancement may not necessarily be the same as the field of science or technology of the company project or in which the company carries out its regular business.

The field of science and technology you enter on this line is used for statistical and resource management purposes only and not for the purpose of determining eligibility of the work. Appendix 1 is not an exhaustive list of all eligible fields of science or technology.

Lines 208 and 210 – Continuation of a previously claimed project or a first claim for the project

Indicate whether or not you made an SR&ED claim for this project in any previous tax year. Select only one. If the project is a continuation from a predecessor company, and it is the first time you are making a claim, select line 210 (first claim for the project).

Lines 218 to 221 – Work done jointly or in collaboration with other businesses

Line 218 – Indicate whether any of the claimed SR&ED project work was done jointly or in collaboration with other businesses. For example, your answer will be yes if the work was done as a joint effort, with or without a formal agreement.

• Do not include contractors that performed some or all of the work. Information regarding contractors is requested on lines 267 to 269.
• Do not include other parties that contracted you to perform SR&ED work on their behalf. This information is requested on line 266.

Lines 220 and 221

(Complete these lines only if you responded yes at line 218.)

Enter on line 220 the names of the businesses that performed SR&ED work jointly or in collaboration with you. If available, list their corresponding business numbers (BNs) at line 221.

Section B – Project descriptions

In this section you must provide technical details of your basic research, applied research, or experimental development project. Lines 242, 244, and 246 have word limitations of 350, 700, and 350 respectively. Therefore, your answers should focus on the technical facts and should be in the technical language and style of those who did the actual work, or who understand and are familiar with the work.

Use existing materials and documents generated during the course of your work to extract the pertinent information to complete this section. You should retain these materials and documents so that the CRA can verify that there is a reasonable level of support for the SR&ED work that was performed in the tax year. (See Appendix 2, “Documentation and other evidence to support your SR&ED claim.” The Self-Assessment and Learning Tool (SALT) might also be helpful in assisting you in identifying and gathering your SR&ED project information.

If you are using approved tax software to prepare your income tax return, your responses to these questions for each project should be included in the software and should not be submitted as a separate attachment.

If you are not using approved tax software to prepare your claim, use a separate sheet if necessary to respond to these questions. Each separate sheet must be clearly labelled with the project title and the question you are answering.

Line 242 – What scientific or technological uncertainties did you attempt to overcome?
(Maximum 350 words)

Describe the scientific or technological uncertainty you encountered that led you to do the SR&ED. Scientific or technological uncertainty means whether a given result or objective can be achieved or how to achieve it, is not known or determined on the basis of generally available scientific or technological knowledge or experience.

In responding to this question, we suggest that you include the objective of the project and describe the scientific knowledge or the new or improved capability you were seeking. Your response should indicate the existing scientific or technological knowledge base at the onset of the SR&ED project. Describe the shortcomings or limitations of that knowledge base that prevented you from overcoming the scientific or technological uncertainties identified. In other words, your response should describe how the uncertainties could not be resolved on the basis of generally available scientific or technological knowledge or experience.

Reference : Eligibility of Work for SR&ED Investment Tax Credits Policy

Line 244 – What work did you perform in the tax year to overcome the scientific or technological uncertainties described in line 242?
(Maximum 700 words)

In responding to this question, describe, in a clear and concise manner, how you attempted to overcome the scientific or technological uncertainties that you identified at line 242.

Describe the work done in chronological order. In doing so, clearly demonstrate the systematic nature of the investigation or search. This includes describing;

• the hypotheses designed to reduce or eliminate the uncertainties;
• experiments and/or analysis conducted to test the hypotheses;
• the results obtained; and,
• the conclusions.

If this is a continuation of a previously claimed project, it is important that you focus on the work carried out during the tax year for which you are making the claim.

If all or part of the work was performed on your behalf by contractors, include that work in your description and identify that the work was performed by contractors.

Reference: Eligibility of Work for SR&ED Investment Tax Credits Policy

Line 246 – What scientific or technological advancements did you achieve or attempt to achieve as a result of the work described in line 244?
(Maximum 350 words)

Describe the new scientific knowledge you gained or the technological advancements you achieved, or attempt to achieve, as a result of the SR&ED work you performed.

Note that it is the advancement in the underlying science or technology that is important, not how the work advanced your business or business practices.

In responding to this question, we suggest that you focus on how the work you described at line 244 advanced the scientific or technological knowledge base that existed at the onset of the project. In other words, describe the information or the knowledge generated that advanced your understanding of scientific relations or technology.

Reference: Eligibility of Work for SR&ED Investment Tax Credits Policy

Section C – Additional project information

In this section, provide additional information that will help the CRA to get a better understanding of the context of your project. A better understanding of the context may allow the CRA to expedite the processing of your claim.

Lines 253 to 259 – Who prepared the technical descriptions?

Provide information on who prepared the responses for Section B above.

Line 253 – Tick this box if an employee who was directly involved in the project prepared the responses to Section B. A directly involved employee is an employee of the company who performed or directly supervised the SR&ED work described at line 244.

If you tick box 253, complete line 254.

Line 254 – Provide the name of the directly involved employee who prepared the responses.

Line 255 – Tick this box if an employee who was not directly involved in the project prepared the responses to Section B.

If you tick this box, complete line 256.

Line 256 – Provide the name of the employee who prepared the responses.

Line 257 – Tick this box if an external consultant prepared the responses to Section B. An external consultant is not an employee of the company.

If you tick this box, complete line 258.

Lines 258 and 259 – Provide the name and firm of the external consultant who prepared the responses.

Lines 260 and 261 – Key individuals

Line 260 – Provide the names of key individuals directly involved in the project. You may list up to three individuals. A directly involved individual is a person that performed or directly supervised the SR&ED work described at line 244.

Line 261 – Provide the qualifications or experience and position title of the individuals listed on line 260. If any of the individuals are contractors, use contractor for their position title. The experience listed at this line should be relevant to the SR&ED work performed.

Line 265 – SR&ED performed outside Canada

Indicate whether you are claiming salary or wages for SR&ED work performed outside Canada for this project.

Line 266 – SR&ED carried out on behalf of another party

Indicate if any of the work you are claiming was carried out on behalf of another party.

For example, you would answer yes to this question if you had performed any SR&ED work on behalf of another business on a contract basis.

Do not include any work you performed jointly or in collaboration with other businesses. Information regarding joint efforts is requested at lines 218 to 221.

Lines 267 to 269 – SR&ED performed by others

Line 267 – Indicate if you are claiming SR&ED work that was performed by others who are not employees of your company (for example, contractors).

Line 268 – Names

Provide the names of the individuals or businesses that performed the work.

Line 269 – Business number

Provide the business number (BN) of those listed on line 268. For individuals you can provide the GST or HST number.

Lines 270 to 282 – Evidence to support your claim

Indicate what evidence you have to support your SR&ED claim. Tick all items on the list that apply. If you have items or documents to support your claim that are not listed, tick the box at line 281 and use 15 words or less to describe them on line 282.

If you fail to tick a box when you initially file your claim, you can still provide the evidence to the CRA reviewer during the review of your claim even if the reporting deadline has passed.

Do not submit these documents or items with your claim.

Refer to Appendix 2 for more detailed information on substantiating evidence.

Part 3 – Calculation of SR&ED expenditures

In this part you determine how much you spent on the SR&ED work performed in the year. Part 3 of the form is divided into three sections.

Section A – Select the method to calculate the SR&ED expenditures

In this section you have to select the method you will be using to calculate the SR&ED expenditures. You can either elect to use the proxy method or choose to use the traditional method. You have to select one method for each tax year for which you want to claim SR&ED expenditures. It is important to note that your selection cannot be changed for the tax year once your form T661 is filed.

The traditional method involves specifically identifying and claiming all overhead and other expenditures you incurred for SR&ED during the tax year. The proxy method provides an alternative method to computing overhead and other expenditures that results in a prescribed proxy amount (PPA). The PPA is not included in the pool of deductible SR&ED expenditures, and you do not deduct it when calculating income. However, you can earn an SR&ED investment tax credit (ITC) on the PPA since it forms part of the qualified SR&ED expenditures for SR&ED ITC purposes. (Refer to Part 4.)

Before selecting the method, refer to Table 1 and Table 2 which show how to treat expenditures under each method.

Lines 160 and 162 – Select the method

Line 160 – Tick this box if you elect to use the proxy method to calculate your SR&ED expenditures. Complete Part 5, and enter "0" on line 360.

Line 162 – Tick this box if you choose to use the traditional method to calculate your SR&ED expenditures. Ideally, you would have to support for the SR&ED portion of overhead and other expenditures by project claimed so that you can enter the total on line 360. Do not complete Part 5, and enter “0” on line 502.

References: Income Tax Act subsection 37(10); Traditional and Proxy Methods Policy

Table 1 below compares the treatment of SR&ED expenditures under the traditional and proxy methods.

The PPA represents SR&ED overhead and other expenditures such as:

• office supplies
• heat, water, electricity, and telephones;
• salary or wages for support staff;
• other salary or wages of employees who directly undertake, supervise, or support the performing of SR&ED, that are directly related but would not be considered as salary or wages of employees who are directly engaged in SR&ED (for example, long-term planning for future SR&ED projects, contract administration);
• contract costs for work that is not SR&ED (for example, contract costs for work of electricians, welders, mechanics) that are directly related and incremental to the performing of SR&ED;
• employer's share of related benefits;
• travel and training;
• property taxes;
• maintenance and upkeep of SR&ED premises, facilities, or equipment; and
• any other eligible expenditure directly related to the performing of SR&ED that you would not have incurred if the SR&ED had not been carried out.

Section B – Calculation of allowable SR&ED expenditures

In this section, compute your allowable SR&ED expenditures related to your SR&ED projects. Enter the allowable current SR&ED expenditures that you made in the tax year for the SR&ED projects you are claiming.

Lines 300 to 309 – Salary or wages of employees directly engaged in SR&ED

The salary or wages that you include on lines 300 to 309 must only be for employees who are directly engaged in SR&ED. Table 3 below, provides assistance to claimants to determine how to treat the salary or wages for various tasks and duties. The claimant should view its employees' tasks in terms of how they correlate to the primary reason for employment when determining whether the employee's salary or wages are directly engaged in SR&ED. The determination of whether an employee is directly engaged in the performing of SR&ED, however, is a question of fact.

References: Income Tax Act sections 5 to 8, subsections 37(9), 37(9.5), and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy

Line 300 – Employees other than specified employees for work performed in Canada

Enter the portion of salary or wages and taxable benefits you incurred and paid (in the tax year or paid within 180 days of the tax year-end), for your employees who are directly engaged in SR&ED for work performed in Canada. The portion of salary or wages to be included in your claim is based on the time spent on SR&ED activities.

Table 2 below provides some of the advantages and disadvantages of the proxy method and the traditional method.

References: Income Tax Act sections 5 to 8, subsections 78(4) and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy

Line 305 – Specified employees for work performed in Canada

Enter the portion of salary or wages and taxable benefits you incurred and paid (in the tax year or paid within 180 days of the tax year-end) for your specified employees who are directly engaged in SR&ED for work performed in Canada. A specified employee is an employee who does not deal at arm's length with the employer or who is a specified shareholder of the employer. A specified shareholder is a person who owns, directly or indirectly, at any time during the year, 10% or more of the issued shares of any class of the capital stock of the employer or of any corporation related to the employer. A specified employee could also be someone related to a specified shareholder; e.g. a sister, a brother, a spouse, etc. For more information, please refer to the SR&ED Salary or wages policy.

These amounts are computed in the same manner as amounts under line 300 above, with the following two exceptions:

1. For specified employees, you cannot include bonuses or remuneration based on profits.
2. For specified employees, the maximum amount of salary or wages is limited to five times the year's maximum pensionable earnings (YMPE). To obtain the YMPE for each year, use the following link: canada.ca/registered-plans-limits.
   The maximum amount is prorated by the number of days in the tax year in which the employee is a specified employee. If a specified employee is also performing SR&ED for an associated corporation, the maximum amount must be allocated between the associated corporations using Form T1174, Agreement Between Associated Corporations to Allocate Salary or Wages of Specified Employees for Scientific Research and Experimental Development (SR&ED).

References: Income Tax Act sections 5 to 8, subsections 37(9), 37(9.5), 78(4), and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy

Line 307 – Employees other than specified employees for work performed outside Canada

Enter the portion of the permissible salary or wages for SR&ED performed outside Canada relating to employees other than specified employees.

The lesser of Amount A and Amount B, discussed below, can be claimed as the permissible salary or wages for SR&ED performed outside Canada.

Amount A – the total of salary or wages for SR&ED work performed outside Canada.

Determine the portion of salary or wages and taxable benefits you paid to your employees other than specified employees who are directly engaged in SR&ED for work performed outside Canada. Refer to line 300 for examples of how to calculate the portion of salary or wages.

The salary or wages that you can claim for SR&ED work performed outside Canada must meet the following criteria:

• the SR&ED work was directly undertaken by an employee and not performed by a contractor;
• the employee who performed the SR&ED work was a resident of Canada at the time the expense was incurred;
• the work was related to a business of the claimant;
• the SR&ED work carried on by the employee outside Canada was an integral part and solely in support of the SR&ED work for a project carried on in Canada; and
• the salary or wages paid were not subject to income or profits tax from another country.

Amount B – 10% of the total of SR&ED salary or wages for SR&ED performed in Canada.

This limit is calculated as 10% of line 306, which is the total salary or wages claimed for SR&ED performed in Canada.

References: Income Tax Act sections 5 to 8, subsections 37(1.4), 37(1.5), 78(4), and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy

Line 309 – Specified employees for work performed outside Canada

Enter the portion of the permissible salary or wages for SR&ED performed outside Canada relating to specified employees. Refer to line 307 for how to calculate the permissible salary or wages for SR&ED performed outside Canada subject to two additional limitations outlined below, which are the same as on line 305:

1. For specified employees, do not include bonuses or remuneration based on profits.
2. For specified employees the maximum amount of salary or wages is limited to five times the year's maximum pensionable earnings (YMPE) determined for purposes of the Canada Pension Plan. To obtain the YMPE for each year, use the following link: canada.ca/registered-plans-limits.
   This maximum amount is prorated by the number of days in the tax year on which the employee is a specified employee. If a specified employee is also performing SR&ED for an associated corporation, the maximum amount must be allocated between the associated corporations using Form T1174, Agreement Between Associated Corporations to Allocate Salary or Wages of Specified Employees for Scientific Research and Experimental Development (SR&ED).

References: Income Tax Act sections 5 to 8, subsections 37(1.4), 37(1.5), 37(9), 37(9.5), 78(4), and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy

Lines 310 and 315 – Unpaid salary or wages

The salary or wages incurred but not paid within 180 days of the tax year-end are deemed not incurred in the tax year. They are deemed incurred in the tax year the amounts are paid.

Line 310 – Salary or wages from prior tax years paid in this tax year

Enter any amounts reported on line 315 in prior tax years that were paid in the tax year of this claim.

Line 315 – Unpaid salary or wages

Enter the amount of salary or wages incurred in the tax year but not paid within 180 days of the tax year-end. The unpaid amount you report on line 315 should not be included on lines 300 to 309 or on line 360. In a subsequent tax year in which you pay the expenditure, you can include the expenditure on line 310 of Form T661.

Table 3 below, provides assistance to claimants to determine how to treat the salary or wages for various tasks and duties.

References: Income Tax Act sections 5 to 8, subsections 37(1.4), 37(1.5), 37(9), 37(9.5), 78(4), and 248(1), paragraph 37(1)(a), clause 37(8)(a)(ii)(A), subclause 37(8)(a)(ii)(B)(IV); Income Tax Regulations paragraph 2900(2)(b); SR&ED Salary or Wages Policy; SR&ED Overhead and Other Expenditures Policy; Form T1174, Agreement Between Associated Corporations to Allocate Salary or Wages of Specified Employees for Scientific Research and Experimental Development (SR&ED)

Line 320 – Cost of materials consumed

Enter the cost of materials consumed in performing your SR&ED. You can claim the cost of materials that are destroyed or that are rendered virtually valueless as a result of performing SR&ED. However, do not include expenditures for items such as cleaning supplies, discs used in computers, filter papers, lubricants, solvents, acids and test tubes (or other similar glassware or plastic ware) used in SR&ED. Such items are supplies and are considered overhead expenditures. Do not include measuring appliances.

If you purchase materials that you will use later in SR&ED, the cost of these materials can only be claimed as an SR&ED expenditure in the tax year in which the materials are consumed. The cost of materials includes invoice costs, custom and excise duties, transportation, other acquisition costs, and storage costs.

References: Income Tax Act subclauses 37(8)(a)(ii)(A)(I), 37(8)(a)(ii)(A)(II), and 37(8)(a)(ii)(B)(V); Income Tax Regulations paragraph2900(2)(a); Materials for SR&ED Policy; SR&ED During Production Runs Policy; SR&ED while Developing an Asset Policy

Line 325 – Cost of materials transformed

Enter the cost of materials transformed in performing your SR&ED. Materials transformed are described as materials that have been incorporated into other materials or products that have some value to either the claimant or another party.

If you purchase materials that you will use later in SR&ED, the cost of these materials can only be claimed as an SR&ED expenditure in the tax year in which the materials are transformed. The cost of materials includes invoice costs, custom and excise duties, transportation, other acquisition costs, and storage costs.

References: Income Tax Act subclauses 37(8)(a)(ii)(A)(I), 37(8)(a)(i)(A)(II) and 37(8)(a)(ii)(B)(V); Income Tax Regulations paragraph 2900(2)(a); Materials for SR&ED Policy; Recapture of SR&ED Investment Tax Credit Policy; SR&ED During Production Runs Policy; SR&ED while Developing an Asset Policy

Lines 340 and 345 – SR&ED contracts

You can claim expenditures for SR&ED contracts when a contractor or subcontractor performs SR&ED work on your behalf. You must show that the SR&ED work was carried out in Canada and was related to your business. See also line 529.

Is it an SR&ED contract or a third-party payment?

It is important to distinguish between contracts for SR&ED performed on your behalf and payments that you made to certain third parties to be used for SR&ED in Canada.

Payments to an approved association, university, college, research institute, or other similar organization are considered to be third-party payments. In some cases a payment to a Canadian corporation resident in Canada could also be considered a third-party payment. Third-party payments refer to amounts paid for SR&ED not directly undertaken by you or on your behalf. The third-party payments must be for SR&ED carried out in Canada, the SR&ED must be related to your business, and you must be entitled to exploit the results of that SR&ED. Third-party payments are reported on line 370.

Table 4 below, will help you distinguish between payments for SR&ED performed on your behalf (SR&ED contracts) and third-party payments.

Separate the SR&ED contract expenditures between arm’s length contractors and non‑arm’s length contractors. Whether parties are at arm’s length or not has implications for the calculation of qualified expenditures for SR&ED investment tax credit (ITC) in Part 4.

References: Income Tax Act subparagraphs 37(1)(a)(i), 37(1)(a)(i.01), 37(1)(a)(ii), and 37(1)(a)(iii), subclauses 37(8)(a)(ii)(A)(I) and 37(8)(a)(ii)(B)(II), paragraph 37(8)(b), subsection 37(13); Tax Folio Chapter S1‑F5‑C1 – Related persons and dealing at arm’s length; Assistance and Contract Payments Policy; Third‑Party Payments Policy

Line 340 – Arm’s length contracts

Enter the amount you paid or that was payable to arm’s length contractors who performed SR&ED work on your behalf. See also line 529.

Line 345 – Non arm’s length contracts

Enter the amount you paid or that was payable to non‑arm’s length (NAL) contractors who performed SR&ED work on your behalf. When someone performs SR&ED on your behalf and you do not deal with each other at arm’s length, your SR&ED expenditures are deductible but do not qualify for SR&ED investment tax credit (ITC) purposes. Refer to line 541 for more details.

References: Income Tax Act subparagraph 37(1)(a)(i), subclauses 37(8)(a)(ii)(A)(I) and 37(8)(a)(ii)(B)(II), paragraph 37(8)(b), subsection 37(13); Tax Folio Chapter S1‑F5‑C1 – Related persons and dealing at arm’s length; Assistance and Contract Payments Policy

Line 360 – Overhead and other expenditures

Enter "0" if you select the proxy method. If you use the traditional method, enter the overhead and other expenditures incurred for the performing of SR&ED in Canada.

All overhead and other expenditures must be directly attributable to the performing of SR&ED or directly attributable to the provision of premises, facilities or equipment for the performing of SR&ED, in Canada.

Overhead and other expenditures fall into the following categories:

• expenditures that are directly attributable to the performing of SR&ED, and
• expenditure that are for the provision of premises, facilities or equipment for performing SR&ED

Expenditures that are directly attributable to the performing of SR&ED

Expenditures that are directly attributable to the performing of SR&ED include:

• directly related and incremental expenditures, and
• other salary or wages for the performing of SR&ED

Directly related and incremental expenditures

Expenditures that are directly attributable to the performing of SR&ED include expenditures, or the portion of expenditures, that are directly related to the performing of SR&ED and that would not have been incurred if such work had not occurred (incremental expenditures). See Table 5 for examples of such costs.

You must specifically identify each overhead expenditure for SR&ED and, where applicable, allocate a reasonable amount to SR&ED. You should be prepared to explain how you determined the amount, provide support for this determination, and where applicable, demonstrate that the overhead expenditures were incremental to the SR&ED.

Other salary or wages for the performing of SR&ED

At lines 300 to 309 you have been asked to include the salary or wages for employees who performed tasks or duties directly engaged in SR&ED. Under the traditional method you can include the portion of other salary or wages of employees who directly undertake, supervise, or support the performing of SR&ED but who are not directly engaged in the SR&ED itself, at line 360. See Table 5 below for examples of such tasks.

Expenditures that are for the provision of premises, facilities or equipment for the performing of SR&ED

The following expenditures are directly attributable to the provision of premises, facilities or equipment for the performing of SR&ED in Canada:

• Costs for maintaining premises, facilities, or equipment for the performing SR&ED in Canada. See Table 5 for an example of such costs.
• Other expenditures, or portions of expenditures, directly related to the provision of premises, facilities, or equipment that you own and that would not have been incurred if you had not used them for the performing of SR&ED (incremental expenditures). For this type of overhead cost, we consider a reasonable percentage of an expenditure to be incremental. See Table 5 for examples of such costs.

You must specifically identify each overhead expenditure for SR&ED and, where applicable, allocate a reasonable amount to SR&ED. You should be prepared to explain how you determined the amount, provide support for this determination, and where applicable, demonstrate that the overhead expenditures are directly attributable to the provision of premises, facilities or equipment for the performing SR&ED.

Table 5 below, will help you determine what qualifies as overhead and other expenditures in the performing of SR&ED under the traditional method.

References: Income Tax Act subclauses 37(8)(a)(ii)(A)(I) and 37(8)(a)(ii)(A)(II); Income Tax Regulations paragraphs 2900(2)(b) and 2900(2)(c), subsection 2900(3); SR&ED Overhead and Other Expenditures Policy

Line 370 – Third-party payments

A third-party payment is generally a payment that you made to an approved association, university, college, research institute, or other similar institution. In some cases a payment to a Canadian corporation resident in Canada could also be considered a third-party payment. A third-party payment must be for SR&ED work carried out in Canada that is related to your business, and you must be entitled to exploit the results of the SR&ED. Third-party payments refer to amounts paid for SR&ED not directly undertaken by you or on your behalf. For a list of the approved entities, consult Appendix A of the Third-Party Payments Policy. If an entity is not listed in Appendix A, contact the entity in question with respect to their status as an approved entity.

A third-party payment of the claimant made to an SR&ED performer must be reduced by any related expenditure of the SR&ED performer that is for capital property, or the use of, or the right to use, capital property (if the capital property were owned by the SR&ED performer).

If you made a third-party payment, you must complete Form T1263, Third-Party Payments for Scientific Research and Experimental Development (SR&ED), for each payment and attach it to Form T661. On line 370, include the total of all third-party payments for SR&ED that you reported on Form(s) T1263. (See lines 340 and 345 for an explanation of the difference between third-party payments and SR&ED contracts.)

Third-party payments by farm producers

Special rules apply to contributions made by farm producers to agricultural organizations (also known as check-offs) to qualify as third-party payments. For more information, refer to Section 8 of the Third-Party Payments Policy.

Farm producers are required to file either Schedule T2SCH31 or Form T2038(IND) to receive investment tax credit (ITC) on third-party payments (check-offs) made to agricultural organizations. However, they do not need to file Form T661 or Form T1263 if they are only claiming check-offs for the tax year.

References: Income Tax Act subsection 37(7), paragraphs 37(8)(b) and 37(8)(c), subparagraphs 37(1)(a)(i.1), 37(1)(a)(ii), and 37(1)(a)(iii); Third-Party Payments Policy; Form T1263, Third-Party Payments for Scientific Research and Experimental Development (SR&ED)

Line 400 – Total allowable SR&ED expenditures

Line 400 - Total allowable SR&ED expenditures is the total of lines 306 to 370, not including line 315.

Section C – Calculation of pool of deductible SR&ED expenditures

Now that you have computed the total allowable SR&ED expenditures (line 400), in this section you will calculate the pool of deductible SR&ED expenditures that is available to be deducted in determining your net income or loss for income tax purposes. The pool concept gives you the option of deducting the SR&ED expenditures available for the tax year or any portion thereof. Any unclaimed balance can be carried forward to be claimed in future years.

Lines 429 to 432 – Government and non-government assistance

If, at the filing-due-date of your income tax return for the tax year, you have received, are entitled to receive, or can reasonably expect to receive assistance for SR&ED expenditures that you are claiming in the tax year, include the assistance on lines 429, 431, and 432, as appropriate. This will reduce your pool of deductible SR&ED expenditures.

If you are using the proxy method, you do not deduct any assistance for expenditures that the prescribed proxy amount (PPA) represents.

Line 429 – Provincial/territorial government assistance

Enter the amount of provincial/territorial government assistance you have received, are entitled to receive, or can reasonably expect to receive for SR&ED expenditures that you are claiming that make-up on line 400 in the tax year. This includes the provincial/territorial SR&ED or R&D tax credits, and any forgivable loans, grants, subsidies, deductions from tax, investment allowances, or other forms of assistance from provincial/territorial governments.

For information, refer to our Summary of provincial and territorial research and development (R&D) tax credits.

For those provinces where the renouncing option is available, you can renounce the credit by filing the provincial R&D tax credit form or by sending a letter expressing your intent to the tax centre that normally processes your return.

Line 431 – Other government assistance

Enter the amount of other government assistance you have received, are entitled to receive, or can reasonably expect to receive for SR&ED expenditures that you are claiming that make-up on line 400 in the tax year. This includes forgivable loans, grants, subsidies, deductions from tax, investment allowances, or other forms of assistance from federal or municipal governments or public authorities, but it excludes the federal SR&ED investment tax credit (ITC).

Line 432 – Non-government assistance

Enter the amount of non-government assistance you have received, are entitled to receive, or can reasonably expect to receive for SR&ED expenditures that you are claiming that make-up on line 400 in the tax year. This includes inducements and other assistance that you received from other entities including corporations.

References: Income Tax Act subsection 127(9), paragraphs 12(1)(x) and 37(1)(d); Assistance and Contract Payments Policy

Line 435 – SR&ED ITCs applied and/or refunded in the prior tax year

Enter the investment tax credit (ITC) for qualified SR&ED expenditures that you claimed in the prior tax year. This will reduce your pool of deductible SR&ED expenditures in the current tax year. The prior tax year SR&ED ITC amount claimed can include the following:

1. SR&ED ITC refunds;
2. the SR&ED ITC used to reduce tax payable (ITC applied); and
3. the SR&ED ITC you carried back to previous years (ITC carried back).

Do not include ITCs allocated from a partnership.

Corporations can determine the amount to include on line 435 by adding lines 560, 580, 610, 911, 912, and 913 of the prior tax year's Schedule T2SCH31; individuals can use the resulting amounts on lines 6712 and 6715 of the prior tax year's Form T2038(IND) or refer to the notice of assessment or other relevant correspondence from the CRA.

References: Income Tax Act subsections 127(5) and 127.1(1), paragraphs 13(7.1)(e) and 37(1)(e); SR&ED Investment Tax Credit Policy

Line 440 – Sale of SR&ED capital assets and other deductions

If, during the tax year, you sold a capital asset for which you had previously claimed an SR&ED expenditure, and the amount on line 450 includes undeducted expenditures for the asset sold, enter on line 440 the lesser of:

1. the proceeds of disposition; and
2. the amount of unclaimed expenditures included on line 450 for the asset.

For an example, refer to Section 9.1 of the SR&ED Capital Expenditures Policy.

Other deductions

In certain cases, other deductions may have to be made to the pool of deductible SR&ED expenditures (for example, expenditures a corporation renounced for the purposes of Part VIII tax and amounts deducted for insolvency).

References: Income Tax Act section 61.3, subsections 13(1), 37(1), and 37(6), paragraphs 13(7.1)(a), 13(7)(e), 13(7.1)(f), 37(1)(b) [Repealed], and 37(1)(d); Income Tax Regulations paragraph 1102(1)(d)

Line 445 – Repayments of government and non-government assistance

Enter the amount of assistance repaid in the tax year that previously reduced your pool of deductible SR&ED expenditures (these amounts would have been included on lines 429 to 432 in prior years). Enter the amount of assistance that you applied to reduce your pool of deductible SR&ED expenditures in prior tax years, but that you did not receive and that is no longer an amount that you reasonably expect to receive.

References: Income Tax Act subsection 127(10.8), paragraph 37(1)(c); Assistance and Contract Payments Policy

Line 450 – Prior tax year's pool balance of deductible SR&ED expenditures

Enter the pool balance of deductible SR&ED expenditures that you are carrying forward from the prior tax year.

Line 452 – SR&ED expenditure pool transfer from amalgamation or wind-up

When a corporation is amalgamated with or wound up into another corporation, the predecessor corporation's pool of deductible SR&ED expenditures may be transferred to the successor corporation.

References: Income Tax Act subsection 37(1), paragraph 87(2)(l); Pool of Deductible SR&ED Expenditures Policy

Line 453 – Amount of SR&ED ITC recaptured in the prior tax year

Enter the amount of all SR&ED investment tax credit (ITC) recaptured in the prior tax year.

Generally, a recapture of SR&ED ITC is triggered by the sale of a property or its conversion to commercial use, when the cost of that property was previously claimed as an SR&ED expenditure for ITC purposes.

References: Income Tax Act paragraph 37(1)(c.2); Recapture of SR&ED Investment Tax Credit Policy

Line 455 – Amount available for deduction

This amount represents the pool of deductible SR&ED expenditures that is available to be deducted in determining your net income or loss for income tax purposes.

If the amount is negative, enter "0" on line 455 and include the negative amount in determining your net income or loss for income tax purposes for the tax year. Corporations include the amount on line 231 of Schedule T2SCH1 and individuals would include this in their self-employment income (lines 135 to 143) on their individual income tax and benefit return.

References: Income Tax Act subsection 37(1), paragraphs 12(1)(v) and 37(1)(c.1); Pool of Deductible SR&ED Expenditures Policy

Line 460 – Deduction claimed in the tax year

Enter the amount you are claiming as a deduction in calculating your net income or loss for income tax purposes in the tax year. The deduction is optional. You may deduct all or a portion of your pool of deductible SR&ED expenditures calculated at line 455.

References: Income Tax Act subsections 37(1), 37(6.1), and 37(11), paragraph 37(1)(h); Pool of Deductible SR&ED Expenditures Policy

Line 470 – Pool balance of deductible SR&ED expenditures

This amount is your unclaimed pool of deductible SR&ED expenditures at the end of the tax year. Subject to the "Note" under line 460, you can carry forward this balance to be deducted in future years.

References: Income Tax Act subsection 37(1); Pool of Deductible SR&ED Expenditures Policy

Part 4 – Calculation of qualified SR&ED expenditures for investment tax credit (ITC) purposes

In this part you will determine the SR&ED expenditures that qualify for an investment tax credit (ITC).

Amounts included on lines 500 to 508 increase your qualified SR&ED expenditures for the ITC.

Line 500 – Payment of prior tax years' unpaid amounts (other than salary or wages)

Enter any amounts identified on line 520 in prior tax years that were paid in the tax year of this claim. If you partially paid an SR&ED contract incurred that was reported on line 520 of a prior tax year, add only 80% of the partial payment.

For an example of unpaid amounts (other than salary or wages), refer to section 4.1.1 of the Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy.

References: Income Tax Act subsection 127(26); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Line 502 – Prescribed proxy amount (PPA)

Enter "0" if you choose the traditional method. If you select the proxy method, you must complete Part 5 to calculate your PPA.

References: Income Tax Act subsections 37(10), 37(8), and 127(9); Income Tax Regulations sections 2900(4), 2900(6), 2900(7), 2900(8), 2900(9), and 2900(10); Prescribed Proxy Amount Policy

Line 508 – Qualified expenditures transferred to you

If you contracted another party to carry out SR&ED on your behalf and you and the other party are not dealing at arm's length (non-arm's length), your expenditures for the contract do not qualify for SR&ED ITC purposes. In addition, the amount received or receivable by the performer of the SR&ED is not considered to be a contract payment. If you, the payer, are not dealing at arm's length with the performer and wish to have qualified SR&ED expenditures of the performer transferred to you, both you and the performer must complete and sign Form T1146, Agreement to Transfer Qualified Expenditures Incurred in Respect of SR&ED Contracts Between Persons Not Dealing at Arm's Length.

For more information on how to calculate the amount to be transferred from the performer to the payer, refer to Form T1146. The payer must report the agreed transferred amounts from lines 015 and 020 of Form T1146 to line 508 of Form T661, and the performer must report the same amounts on line 544 of their Form T661.

References: Income Tax Act subsections 127(13), 127(14), and 127(15);Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy; Tax Folio Chapter S1-F5-C1 - Related persons and dealing at arm’s length; Form T1146, Agreement to Transfer Qualified Expenditures Incurred in Respect of SR&ED Contracts Between Persons Not Dealing at Arm's Length

Amounts included on lines 513 to 544 decrease your qualified SR&ED expenditures for ITC.

Lines 513 to 517 – Government and non-government assistance and contract payments

All assistance and contract payments that you have received, are entitled to receive, or can reasonably expect to receive in respect of SR&ED reduce the qualified SR&ED expenditures for ITC purposes regardless of whether the traditional method or the proxy method is used.

Line 513 – Provincial/territorial government assistance

Enter the amount of provincial/territorial government assistance in respect of SR&ED. For a brief overview of what constitutes provincial/territorial government assistance, see the explanation for line 429.

Line 515 – Other government assistance (other than provincial and territorial R&D tax credits)

Enter the amount of other government assistance in respect of SR&ED. For a brief overview of what constitutes other government assistance, see the explanation for line 431.

Line 517 – Non-government assistance and contract payments

Enter the amount of non-government assistance and contract payments in respect of SR&ED. For a brief overview of what constitutes non-government assistance, see the explanation for line 432.

The excess funding of $750 and $250 received for projects 1 and 3 (respectively) does not reduce the Project 2 expenditures as a result of allocating funding on a project-by-project basis. The allocation of assistance on a project-by-project basis increases your qualified SR&ED expenditures from $19,000 to $20,000. The $20,000 is eligible for an SR&ED investment tax credit (ITC) on line 570.

Reference: Income Tax Act subsection 127(9); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Line 520 – Current expenditures not paid within 180 days of the tax year‑end

Enter the amount of qualified current expenditures (other than salary or wages) incurred in the tax year but not paid within 180 days of the tax year‑end. This applies to all current SR&ED expenditures (lines 320 to 370) except for unpaid salary or wages that are included on line 315. If you pay the expenditure in a subsequent tax year, enter the amount on line 500 of Form T661 for that tax year.

If the unpaid amount is in respect of an SR&ED contract, only report 80% of the unpaid contract amount on line 520.

Although your unpaid expenditures do not qualify for SR&ED investment tax credit (ITC) purposes until the time you pay them, they are still allowable SR&ED expenditures (other than unpaid salary or wages) in the tax year you incurred the expenditure.

For an example of unpaid amounts (other than salary or wages), refer to section 4.1.1 of the Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy.

References: Income Tax Act subsection 127(26); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Line 528 – Amounts paid in respect of an SR&ED contract to a person or partnership that is not a taxable supplier

Enter 80% of all amounts in respect of an SR&ED contract paid or payable to a person or partnership that is not a taxable supplier. This situation usually occurs when a payer contracts out its SR&ED to an arm’s length performer. If a contract is given to a performer with whom you are not dealing at arm’s length, enter the contract amount on line 541.

References: Income Tax Act subsection 127(9) definition of “qualified expenditure”; Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Line 529 – 20% of expenditures included on lines 340 and 370

Enter 20% of the expenditures included on line 340 (arm’s length contracts) and line 370 (third‑party payments). Only 80% of the expenditures for arm’s length contracts for SR&ED performed on your behalf and third‑party payments can be included as qualified SR&ED expenditures for investment tax credit (ITC) purposes.

Reference: Income Tax Act subsection 127(9); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Lines 530 – Prescribed expenditures not allowed by regulations

There are certain expenditures that can be included in your pool of deductible SR&ED expenditures but are not allowed, by regulation, to be included in your qualified SR&ED expenditures for investment tax credit purposes. These expenditures are referred to as prescribed expenditures and the most common are:

• interest and other financing costs;
• a due or fee for membership in a scientific or technical society or organization;
• legal or accounting fees; and
• expenditures for the acquisition of used equipment.

See the references below for other prescribed expenditures.

Enter the total prescribed on line 530.

References: Income Tax Act subsection 127(9); Income Tax Regulations section 2902; Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Lines 533 – Other deductions

Enter any SR&ED expenditures incurred in the course of earning income that will not be subject to income tax. An SR&ED investment tax credit (ITC) can only be generated when the income from the business, to which a particular expenditure relates, is subject to income tax.

References: Income Tax Act subsection 127(9); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy

Lines 538 to 544 – Non-arm's length transactions

Line 538 – Assistance allocated to you

When an ongoing SR&ED project is performed by a related group (persons or partnerships with which the claimant is not dealing at arm's length at the time the SR&ED is performed) and the amount of assistance for one of the members is in excess of its SR&ED expenditures, the excess amount of assistance must be allocated to the other members of the group. Assistance refers to government assistance, non-government assistance, and contract payments as defined under lines 513 to 517.

The allocation of the unapplied assistance must be done using Form T1145, Agreement to Allocate Assistance for SR&ED Between Persons Not Dealing at Arm's Length. Form T1145 should be filed with Form T661. The performer must report the agreed transferred amount on line 538 of Form T661.

References: Income Tax Act subsections 127(19), 127(20), 127(21), and 127(22); Assistance and Contract Payments Policy; Form T1145, Agreement to Allocate Assistance for SR&ED Between Persons Not Dealing at Arm's Length

Line 541 – Expenditures for non-arm's length SR&ED contracts

Expenditures for SR&ED performed on your behalf by a performer with whom you are not dealing at arm's length do not qualify for the SR&ED investment tax credit (ITC). On line 541, enter the amount you entered on line 345 for non-arm's length SR&ED contracts.

References: Income Tax Act subsection 127(9) definition of "qualified expenditure"; Contract Expenditures for SR&ED Performed on Behalf of a Claimant Policy

Lines 542 – Adjustments to purchases of goods and services from non-arm's length suppliers

When you purchase goods or services (other than SR&ED contracts) from a person or partnership with whom you do not deal at arm's length at the time of the transaction, the amount of the qualified SR&ED expenditure for SR&ED investment tax credit (ITC) purposes is limited to the cost to the non-arm's length person who provides the goods or services.

The amount of expenditure you incur is deemed to be:

1. in the case of a service rendered to you, either the expenditure you actually incurred or the adjusted service cost, whichever amount is less; and
2. in the case of a good sold to you, either the cost to you or the adjusted selling cost to the supplier of the good, whichever amount is less.

Enter on line 542 the difference between the amount included as SR&ED expenditures for the purchases of goods or services from non-arm's length suppliers and the deemed amount of the SR&ED expenditure.

For an example of the adjusted service cost calculation and the adjustment to qualified expenditures, refer to Appendix B.1.1 of the Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy.

For an example of the adjusted selling cost calculation and the adjustment to qualified expenditures, refer to Appendix B.2.1 of the Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy.

References: Income Tax Act subsections 127(11.6) to 127(11.8); Total Qualified SR&ED Expenditures for Investment Tax Credit Purposes Policy.

Line 544 – Qualified expenditures you transferred

Enter the amount of qualified expenditures you transferred to a non-arm's length party. See the explanation under lines 508 and 541.

Line 559 – Qualified SR&ED expenditures

Enter: line 511 minus (lines 513 to 544) on line 559. This is the qualified SR&ED expenditures for this tax year.

Line 560 – Repayments of assistance and contract payments made in the year

Enter the amount of assistance and contract payments repaid in the tax year that previously reduced your qualified SR&ED expenditures (the assistance or contract payment would have been included on lines 513 to 517 in prior tax years). Also, enter any amount of assistance or contract payment that previously reduced your qualified SR&ED expenditure but that you did not receive and that is no longer an amount that you can reasonably expect to receive.

References: Income Tax Act subsections 127(9) and 127(10.8); Assistance and Contract Payments Policy

Line 570 – Total qualified SR&ED expenditures

This is your total qualified SR&ED expenditures for the purpose of calculating the SR&ED investment tax credit (ITC) for this tax year.

To claim an SR&ED ITC on this amount, use Schedule T2SCH31, Investment Tax Credit – Corporations (lines 559 and 560 of Form T661 are reported on lines 350 and 370 of T2SCH31) or Form T2038(IND), Investment Tax Credit (Individuals) (line 570 of Form T661 is reported on line 6712 of Form T2038(IND)).

Part 5 – Calculation of prescribed proxy amount (PPA)

In this part you will calculate the salary base and the PPA. The PPA is a notional amount on which an SR&ED investment tax credit (ITC) can be earned with respect to SR&ED overhead and other expenditures. If you claim the prescribed proxy amount, you cannot claim overhead and other expenditures. Complete this part only if you have elected to use the proxy method on line 160.

Section A – Salary base

The salary base for the proxy method is composed of salary or wages of the employees who are directly engaged in SR&ED (from lines 300 and 307). The salary base also includes the directly engaged salary or wages of specified employees entered on lines 305 and 309, but this amount may be limited. See Table 7.

For an illustration of the differences between the expenditures for salary or wages you include in the pool of deductible SR&ED expenditures and those you include in the salary base, refer to Table 1 in the Prescribed Proxy Amount Policy.

Line 810 – Salary or wages of employees other than specified employees

Enter the amount from lines 300 and 307. This amount is the total salary or wages of employees directly engaged in SR&ED, other than specified employees.

Line 812 – Bonuses, remuneration based on profits, and taxable benefits

Enter the bonuses, remuneration based on profits, and taxable benefits that are included in the amount on line 810.

Line 814 – Subtotal

Subtract line 812 from line 810.

Boxes 850 to 860 – Salary or wages of specified employees

Box 850 – Enter the name of each specified employee.

Box 852 – Enter the total salary or wages of the specified employee. This amount is 100% of the salary or wages (incurred and paid in the tax year or paid within 180 days of the tax year-end) of the employee, not only the SR&ED portion. Do not include taxable benefits, bonuses, remuneration based on profits, or any unpaid amounts from line 310.

Box 854 – Enter the percentage of time the specified employee was directly engaged in SR&ED, up to a maximum of 75%.

Box 856 – Multiply the amount in box 852 by the percentage in box 854.

Box 858 – Enter the maximum amount allowed for the tax year. To determine the maximum amount allowed for the tax year, use this formula: 2.5 × A × B ÷ 365. In this formula, A is the year's maximum pensionable earnings (YMPE) for the calendar year in which your tax year ends. B is the number of days in the tax year that you employed the individual.

If the specified employee is also employed by a corporation with which you are associated, the maximum amount allowed cannot be more than 2.5 × A, minus the amount the associated corporation has included in its salary base for its tax year ending in the same calendar year.

Box 860 – Enter the lesser of box 856 and box 858.

Table 7 illustrates the rules applicable to salary or wages of specified employees:

For employees 2 and 4, although 80% of the actual time was directly engaged in SR&ED in Canada, enter only 75% in column 3 (maximum % allowed).

For each employee, $138,250 is the maximum allowed for the 2017 year (as determined by the formula 2.5 × $55,300 × 365 / 365, if you employed the employee for the whole year).

Line 816 – Enter the total of the amounts in column 6. This amount is the total amount of salary or wages of specified employees that are directly engaged in SR&ED and that qualify to be included in the salary base. This amount cannot exceed the total of lines 305 and 309 in Section B of Part 3.

Line 818 – Salary base

Add lines 814 and 816 to arrive at the salary base.

References: Income Tax Regulations subsections 2900(5), 2900(7), 2900(8), and 2900(9); Prescribed Proxy Amount Policy; Canada Pension Plan section 18

Section B – Prescribed proxy amount (PPA)

Line 820 – Prescribed proxy amount

The PPA is 55% of the salary base (line 818).

Overall cap on PPA – The objective of the overall cap is to ensure that the total qualified SR&ED expenditures and PPA and other deductions specifically allowed under the Income Tax Act are not greater than the total business expenditures made in the tax year. The overall cap is calculated based on the total expenditures for tax purposes minus certain deductions allowed under other sections of the Act. These latter deductions are specifically identified by the Income Tax Regulations, for example, capital cost allowance (CCA), SR&ED deduction per line 411 of Schedule T2SCH1, building rent, and interest.

References: Income Tax Act subsection 127(9); Income Tax Regulations subsections 2900(4) and 2900(6); Prescribed Proxy Amount Policy

The following example illustrates the determination of the overall cap on the PPA.

Therefore, the maximum PPA you can claim on line 502 in Part 4 of Form T661 is $15,000.

Part 6 – Project costs

In this part you will provide cost information for all SR&ED projects claimed in the tax year. Expenditures should be recorded and allocated on a project basis.

Box 750 – Project title or identification code

Enter the title or identification code for each project. If you have an identification code and a title, enter both. The total number of projects listed in this column must equal the total number of projects claimed in the year and reported on line 050.

Box 752 – Salary or wages

Enter the salary or wages of employees allocated to each project who performed SR&ED work, including specified employees. The total for this column must equal the total of lines 300, 305, 307, and 309 in Part 3.

Box 754 – Cost of materials

Enter the cost of materials consumed and materials transformed in SR&ED allocated to each project. The total for this column must equal the total of lines 320 and 325 in Part 3.

Box 756 – Contract expenditures

Enter contract expenditures for SR&ED performed on your behalf by arm's length and non-arm's length contractors for each project. The total for this column must equal the total of lines 340 and 345 in Part 3.

Box 758 - Overhead and other expenditures

If the proxy method is elected, enter zero “0.” If you use the traditional method, enter the amounts of overhead and other expenditures incurred for SR&ED allocated to each project. The total of this column must equal the amount on line 360. The information is required for tax year ends after 2020, and optional for tax year ends before 2021.

Part 7 – Additional information

In this part you provide information to Statistics Canada to help them gather data on research and development conducted in Canada.

Line 605 – Expenditures for SR&ED performed by you in Canada

Enter the total allowable expenditures for SR&ED performed by you in Canada. Ensure that you remove the expenditures for SR&ED performed outside Canada (lines 307 and 309), the expenditures for SR&ED performed on your behalf (lines 340 and 345), and the third-party payments (line 370), since the SR&ED work was not performed by you.

Lines 600 to 618 – Sources of funds for SR&ED

Estimate the percentage of sources of funds for SR&ED performed within your organization for this tax year. Use the total SR&ED expenditures you entered on line 605 to estimate the percentage of distribution of the sources of funds (make sure that the total of lines 600 to 618 equals 100%).

Line 600 – Internal funding

Enter the percentage of funds that originated from internal company funding, loans, and income tax refunds, etc. that you used in performing SR&ED in this tax year.

Lines 602 and 604 – Funding from parent companies, subsidiaries, and affiliated companies

Enter the percentage of funding received from parent companies, subsidiaries, and affiliated companies. Identify both Canadian and foreign funding.

Line 606 – Federal grants

Enter the percentage of federal grants received for SR&ED, as well as the percentage of the SR&ED portion of any other federal grants received. Do not include funds or tax credits from federal SR&ED tax incentives.

Line 608 – Federal contracts

Enter the percentage of federal contracts received for SR&ED, as well as the percentage of the SR&ED portion of any other federal contracts.

Line 610 – Provincial funding

Enter the percentage of provincial funding received for SR&ED, as well as for provincial SR&ED contracts and the SR&ED portion of any other provincial grants or contracts. Do not include funds or tax credits from provincial SR&ED tax incentives.

Lines 612 and 614 – SR&ED contract work performed for other companies

Enter the percentage of amounts received for conducting SR&ED on behalf of another party, with whom you were dealing at arm's length. Identify both Canadian and foreign amounts received.

Lines 616 and 618 – Other funding

Enter the percentage of funds received from universities, other levels of government, private non-profit organizations, individuals, and foreign governments. Identify both Canadian and foreign funding.

Lines 620 and 622 – Purpose of the work

The definition of SR&ED makes a distinction between basic research or applied research and experimental development. Tick the box that best reflects your project work.

In the event that some of the SR&ED projects claimed in the tax year involve experimental development and others involve basic or applied research, tick both boxes.

Line 620 – Basic or applied research. Tick this box if you were attempting to gain new scientific knowledge by advancing the current understanding of scientific principles, methodologies, or relations that may or may not have a specific practical application in view. Results of this type of work are often published in scientific journals and other peer-reviewed publications.

Line 622 – Experimental development. Tick this box if you were attempting to achieve a technological advancement for the purpose of creating new materials, devices, products, or processes, or to improve existing ones, even if the attempted improvement is not substantial.

Lines 632 to 638 – SR&ED Personnel

Enter the number of people who work on SR&ED projects based on the number of person-years or full-time equivalents (FTEs).

Part 8 – Claim checklist

Before sending your SR&ED claim to the CRA, carefully review the checklist to ensure your claim is complete. This will help to expedite the processing of your claim.

Reference: SR&ED Filing Requirements Policy

Part 9 – Claim preparer information

In this part, you must provide the prescribed information on each claim preparer that has accepted consideration to prepare or assist in the preparation of this SR&ED claim.

A penalty of $1,000 may be assessed in respect of each SR&ED claim for which prescribed information about the claim preparer(s) is missing, incomplete or inaccurate. If a claim preparer has prepared or assisted in the preparation of the claim, the claim preparer will be jointly and severally, or solidarily, liable with the claimant for the penalty.

Line 935 - Was a claim preparer engaged in any aspect of the preparation of this SR&ED claim?

Tick box 1 if a claim preparer was engaged in any way in the preparation of this claim and complete the Claim preparer information table. If no claim preparer was engaged for this claim, check box 2 and complete lines 970 and 975.

Claim preparer means a person or partnership that has accepted consideration to prepare or assist in the preparation of the form but does not include an employee who prepares or assists in the preparation of the form in the course of performing their duties of employment.

Line 940 – Name of claim preparer (company or individual)

Enter the name of the claim preparer. If there is more than one, enter the name of each claim preparer on a separate line. Enter the name of the claim preparer on multiple lines if that claim preparer has a mixed billing arrangement or a contingency fee arrangement with variable rates. See example below.

Line 945 – Business number

Enter the business number (BN) of the claim preparer listed in column 940. Make sure that you enter all fifteen characters of the BN. For individuals you may provide the GST or HST number.

Line 950 – Billing arrangement code

Enter the type of billing arrangement code for the claim preparer as described in Part 9 in the list of Billing arrangement codes. For example, if the billing was based on a contingency fee as a percentage of the investment tax credit earned, enter code 1. If the claim preparer used a mixed billing arrangement, indicate the name of the claim preparer and each type of billing arrangement on separate lines. See example below.

Line 955 – Billing rate

Enter the billing rate for the arrangement. For example, if the claim preparer billed on a contingency fee basis (line 950, code 1) at a rate of 15.5% of the investment tax credit earned, enter 15.5. If you were billed at $75 per hour (line 950, code 2), enter 75. If a claim preparer used a contingency fee arrangement with a variable rate (increasing or decreasing), indicate the name of the claim preparer and the various rates on separate lines. See example below.

Line 960 – Other billing arrangement(s)

If a claim preparer used a billing arrangement other than those identified under Billing arrangement codes in Part 9, you must describe the billing arrangement in box 960 in 10 words or less.

Line 965 – Total fee paid, payable or expected to pay

Enter the total fee paid, payable or expected to be paid to the claim preparer (s) for each billing arrangement.

Line 970 – Identification

Provide the name of the individual, authorized signing officer of the corporation, or authorized partner who has certified that the claim preparer information is complete and accurate.

Line 975 – Signature and date

The CRA requires Part 9 to be signed and dated by the individual, authorized signing officer of the corporation, or authorized partner who has certified that the claim preparer information in Part 9 is complete and accurate. However, if you are filing your SR&ED claim electronically, three items of identification—the Business Number, tax year end, and web access code or EFILE online number and password—make up your electronic signature, which is considered official.

References: Income Tax Act subsections 162(5.1), 162(5.2), 162(5.3)

Part 10 – Certification

Lines 165 and 170 – Authorization and date

Provide the name of the individual, authorized signing officer of the corporation, or authorized partner who has certified the information on Form T661 and the attachments (such as Forms, T1174 Agreement Between Associated Corporations to Allocate Salary or Wages of Specified Employees for Scientific Research and Experimental Development (SR&ED) and T1263 Third-Party Payments for Scientific Research and Experimental Development (SR&ED)). The CRA requires that the claim be signed and dated. However, if you are filing your SR&ED claim electronically, three items of identification—the business number, tax year-end, and web access code or EFILE online number and password—make up your electronic signature, which is considered official.

Line 175 – Name of person/firm who completed this form

Enter, if applicable, the name of the person/firm or representative that helped you complete this form.

Partnerships

There are special requirements that apply to partnerships that sometimes differ from the general requirements in this guide. This section outlines the information the CRA needs in order to process an SR&ED claim when the SR&ED is performed by a partnership. This section also provides a line-by-line explanation for each line item of Form T661 that differs from the general requirements in this guide.

SR&ED expenditures – Form T661

A partnership's SR&ED expenditures must be deducted in the calculation of the partnership's net income or loss in the tax year they are incurred. A partnership will not have a pool of SR&ED expenditures to carry forward to future tax years, and the partners cannot include any portion of the partnership's SR&ED expenditures in their pool of deductible SR&ED expenditures. As a result, the partners do not include any of the partnership's SR&ED expenditures when filing Form T661 with their corporate or individual income tax return.

SR&ED filing requirements for partnerships and partners

The filing requirements of the partnerships and partners differ depending on whether or not a T5013-FIN partnership financial return is filed by the partnership. For a complete explanation of the requirements for filing the T5013-FIN, see Guide T4068, Guide for the Partnership Information Return.

Since the SR&ED expenditures are deducted at the partnership level, the partnership should file Form T661. The SR&ED expenditures on Form T661 are the total SR&ED expenditures of the partnership, and not just a particular partner's share of those expenditures.

If the T5013-FIN partnership financial return is filed or is required to be filed, the partnership should file the following documents:

• Form T661 of the partnership
• the calculation and allocation of the SR&ED investment tax credit (ITC) of the partnership to its partners

To facilitate processing, Form T661 should be filed with the partnership information return no later than 12 months after the earliest of all filing-due-dates for the return of income of the partners (members) for the tax year in which the partnership's fiscal period ends (refer to Guide T4068, Guide for the T5013 Partnership Return, for the filing due dates and requirements for partnerships).

A partner can file Form T661 on behalf of the partnership, but the SR&ED claim will not be processed unless a partnership information return, which agrees with Form T661, has been filed.

The partners should file the following documents:

• Schedule T2SCH31 or Form T2038(IND)
• Form T5013, Statement of Partnership Income

File your Schedule T2SCH31 with your T2 Corporation Income Tax Return or Form T2038(IND) with your T1 individual income tax and benefit return and Form T5013, Statement of Partnership Income at the tax centre that normally processes your return on or before the partners' respective SR&ED reporting deadlines.

If the T5013-FIN partnership financial return is not required to be filed, the partnership does not need to file any documents.

However, the partners should submit:

• Form T661 for the partnership
• financial statements of the partnership
• the calculation and allocation of the SR&ED ITC of the partnership to its partners
• Form T2038(IND)

File the above information with your T1 individual income tax and benefit return at the tax centre that normally processes your return on or before the partners' respective SR&ED reporting deadlines.

References: Income Tax Act subsections 96(1), 127(8), 127(12), 127(12.1), and 248(1); Income Tax Regulations subsections 229(1) to (6); SR&ED Filing Requirements Policy; SR&ED Claims for Partnerships Policy; Guide T4068, Guide for the T5013 Partnership Return

Form T661 – Line-by-line explanations for partnerships

Line 010 – Name of claimant and tax year

Enter the name of the partnership. Do not enter the names of the partners.

Enter the fiscal year of the partnership. Do not enter the tax years of the partners.

Lines 151 to 157 – Partnership information

Line 151 – Indicate whether or not the T5013-FIN partnership financial return was filed.

Lines 153 to 157

(Complete these lines only if you responded no at line 151.)

Enter the name of each partner, the percentage of partnership interest, and the business number or social insurance number.

Lines 160 and 162 – Choice of method

It is important to note that the selection cannot be changed for the tax year once the claim is filed.

Line 160 – Tick this box if the partnership elects to use the proxy method. If a partnership elects to use the proxy method, the election is only valid if it was made on behalf of all the members of the partnership, such as by an authorized partner having the authority to act for the partnership. In other words, all the partners must be in agreement to use the proxy method.

Line 162 – Tick this box if the partnership chooses to use the traditional method.

Line 435 – SR&ED ITC applied and/or refunded in the prior tax year

For partnerships, you have to reduce the balance in the pool of deductible SR&ED expenditures by the amount of the SR&ED investment tax credit (ITC) earned in the same tax year the partnership makes the related SR&ED expenditures.

Line 450 – Prior year's pool balance of deductible SR&ED expenditures

For a partnership, enter "0."

Line 460 – Deduction claimed in the tax year

Claim the total amount from line 455 because the partnership cannot carry forward SR&ED expenditures to a subsequent tax year.

Line 470 – Pool balance of deductible SR&ED expenditures

For a partnership, enter "0."

Lines 508 and 544 – Transfer of qualified SR&ED expenditures between non-arm's length parties

A partnership cannot transfer qualified SR&ED expenditures to or receive them from a non-arm's length party.

Appendix 1 – Field of science or technology codes

Please refer to line 206 in Part 2 of this guide.

1. Natural and formal sciences

Mathematics

• 1.01.01 – Pure mathematics
• 1.01.02 – Applied mathematics
• 1.01.03 – Statistics and probability

Computer and information sciences

• 1.02.01 – Computer sciences
• 1.02.02 – Information technology and bioinformatics
  (Software engineering and technology under 2.02.09)
  (hardware development under 2.02.08)

Physical sciences

• 1.03.01 – Atomic, molecular, and chemical physics
• 1.03.02 – Interaction with radiation
• 1.03.03 – Magnetic resonances
• 1.03.04 – Condensed matter physics
• 1.03.05 – Solid state physics and superconductivity
• 1.03.06 – Particles and fields physics
• 1.03.07 – Nuclear physics
• 1.03.08 – Fluids and plasma physics (including surface physics)
• 1.03.09 – Optics (including laser optics and quantum optics)
• 1.03.10 – Acoustics
• 1.03.11 – Astronomy (including astrophysics space science)

Chemical sciences

• 1.04.01 – Organic chemistry
• 1.04.02 – Inorganic and nuclear chemistry
• 1.04.03 – Physical chemistry, polymer science, and plastics
• 1.04.04 – Electrochemistry (dry cells, batteries, fuel cells, metal corrosion, electrolysis)
• 1.04.05 – Colloid chemistry
• 1.04.06 – Analytical chemistry

Earth and related Environmental sciences

• 1.05.01 – Geosciences, multidisciplinary
• 1.05.02 – Mineralogy and palaeontology
• 1.05.03 – Geochemistry and geophysics
• 1.05.04 – Physical geography
• 1.05.05 – Geology and volcanology
• 1.05.06 – Environmental sciences
• 1.05.07 – Meteorology, atmospheric sciences, and climatic research
• 1.05.08 – Oceanography, hydrology, and water resources

Biological sciences

• 1.06.01 – Cell biology, microbiology, and virology
• 1.06.02 – Biochemistry, molecular biology, and Biochemical research
• 1.06.03 – Mycology
• 1.06.04 – Biophysics
• 1.06.05 – Genetics and heredity (medical genetics under code 3)
• 1.06.06 – Reproductive biology (medical aspects under code 3)
• 1.06.07 – Developmental biology
• 1.06.08 – Plant sciences and botany
• 1.06.09 – Zoology, ornithology, entomology, and behavioural sciences biology
• 1.06.10 – Marine biology, freshwater biology, and limnology
• 1.06.11 – Ecology and biodiversity conservation
• 1.06.12 – Biology (theoretical, thermal, cryobiology, biological rhythm)
• 1.06.13 – Evolutionary biology

Other natural sciences

• 1.07.01 – Other natural sciences

2. Engineering and technology

Civil engineering

• 2.01.01 – Civil engineering
• 2.01.02 – Architecture engineering
• 2.01.03 – Municipal and structural engineering
• 2.01.04 – Transport engineering

Electrical engineering, Electronic engineering, and Information technology

• 2.02.01 – Electrical and electronic engineering
• 2.02.02 – Robotics and automatic control
• 2.02.03 – Micro-electronics
• 2.02.04 – Semiconductors
• 2.02.05 – Automation and control systems
• 2.02.06 – Communication engineering and systems
• 2.02.07 – Telecommunications
• 2.02.08 – Computer hardware and architecture
• 2.02.09 – Software engineering and technology

Mechanical engineering

• 2.03.01 – Mechanical engineering
• 2.03.02 – Applied mechanics
• 2.03.03 – Thermodynamics
• 2.03.04 – Aerospace engineering
• 2.03.05 – Nuclear related engineering (nuclear physics under 1.03.07)
• 2.03.06 – Acoustical engineering
• 2.03.07 – Reliability analysis and non-destructive testing
• 2.03.08 – Automotive and transportation engineering and manufacturing
• 2.03.09 – Tooling, machinery, and equipment engineering and manufacturing
• 2.03.10 – Heating, ventilation, and Air conditioning engineering and manufacturing

Chemical engineering

• 2.04.01 – Chemical engineering (plants, products)
• 2.04.02 – Chemical process engineering

Materials engineering

• 2.05.01 – Materials engineering and metallurgy
• 2.05.02 – Ceramics
• 2.05.03 – Coating and films (including packaging and printing)
• 2.05.04 – Plastics, Rubber, and Composites (including laminates and reinforced plastics)
• 2.05.05 – Paper and wood and textiles
• 2.05.06 – Construction materials (organic and inorganic)

Medical engineering

• 2.06.01 – Medical and biomedical engineering
• 2.06.02 – Medical laboratory technology (biomaterials under 2.09.05)

Environmental engineering

• 2.07.01 – Environmental and geological engineering
• 2.07.02 – Petroleum engineering (fuel, oils)
• 2.07.03 – Energy and fuels
• 2.07.04 – Remote sensing
• 2.07.05 – Mining and mineral processing
• 2.07.06 – Marine engineering, sea vessels, and ocean engineering

Environmental biotechnology

• 2.08.01 – Environmental biotechnology
• 2.08.02 – Bioremediation
• 2.08.03 – Diagnostic biotechnologies in environmental management (DNA chips and biosensing devices)

Industrial biotechnology

• 2.09.01 – Industrial biotechnology
• 2.09.02 – Bioprocessing technologies
• 2.09.03 – Biocatalysis and fermentation
• 2.09.04 – Bioproducts (products that are manufactured using biological material as feedstock)
• 2.09.05 – Biomaterials (bioplastics, biofuels, bioderived bulk and fine chemicals, bio-derived materials)

Nano-technology

• 2.10.01 – Nano-materials (production and properties)
• 2.10.02 – Nano-processes (applications on nano-scale)

Other engineering and technologies

• 2.11.01 – Food and beverages
• 2.11.02 – Oenology
• 2.11.03 – Other engineering and technologies

3. Medical and Health sciences

Basic medicine

• 3.01.01 – Anatomy and morphology (plant science under 1.06.08)
• 3.01.02 – Human genetics
• 3.01.03 – Immunology
• 3.01.04 – Neurosciences
• 3.01.05 – Pharmacology and pharmacy and medicinal chemistry
• 3.01.06 – Toxicology
• 3.01.07 – Physiology and cytology
• 3.01.08 – Pathology

Clinical medicine

• 3.02.01 – Andrology
• 3.02.02 – Obstetrics and gynaecology
• 3.02.03 – Paediatrics
• 3.02.04 – Cardiac and cardiovascular systems
• 3.02.05 – Haematology
• 3.02.06 – Anaesthesiology
• 3.02.07 – Orthopaedics
• 3.02.08 – Radiology and nuclear medicine
• 3.02.09 – Dentistry, oral surgery, and medicine
• 3.02.10 – Dermatology, venereal diseases, and allergy
• 3.02.11 – Rheumatology
• 3.02.12 – Endocrinology and metabolism and gastroenterology
• 3.02.13 – Urology and nephrology
• 3.02.14 – Oncology

Health sciences

• 3.03.01 – Health care sciences and nursing
• 3.03.02 – Nutrition and dietetics
• 3.03.03 – Parasitology
• 3.03.04 – Infectious diseases and epidemiology
• 3.03.05 – Occupational health

Medical biotechnology

• 3.04.01 – Health-related biotechnology
• 3.04.02 – Technologies involving the manipulation of cells, tissues, organs, or the whole organism
• 3.04.03 – Technologies involving identifying the functioning of DNA, proteins, and enzymes
• 3.04.04 – Pharmacogenomics, gene-based therapeutics
• 3.04.05 – Biomaterials (related to medical implants, devices, sensors)

Other medical sciences

• 3.05.01 – Forensic science
• 3.05.02 – Other medical sciences

4. Agricultural sciences

Agriculture, Forestry, and Fisheries Veterinary science

• 4.01.01 – Agriculture
• 4.01.02 – Forestry
• 4.01.03 – Fisheries and Aquaculture
• 4.01.04 – Soil science
• 4.01.05 – Horticulture
• 4.01.06 – Viticulture
• 4.01.07 – Agronomy
• 4.01.08 – Plant breeding and plant protection (Agricultural biotechnology under 4.04.01)

Animal and dairy science

• 4.02.01 – Animal and Dairy science
• 4.02.02 – Animal husbandry (animal biotechnology under 4.04.01)

Veterinary science

• 4.03.01 – Veterinary science (all)

Agricultural biotechnology

• 4.04.01 – Agricultural biotechnology and food biotechnology
• 4.04.02 – Genetically Modified (GM) organism technology and livestock cloning
• 4.04.03 – Diagnostics (DNA chips and biosensing devices)
• 4.04.04 – Biomass feedstock production technologies
• 4.04.05 – Biopharming

Other agricultural sciences

• 4.05.01 – Other agricultural sciences

The following fields of science are specifically excluded under subsection 248(1) of the Income Tax Act, definition of "scientific research and experimental development" for the purposes of SR&ED:

• Social sciences
  • Psychology (Psychological research may be eligible as a support activity)
  • Sociology
  • Social and economic geography
  • Economics and Business
  • Law
  • Media and communications
  • Educational sciences
  • Political science
  • Other social sciences
• Humanities
  • History and Archaeology
  • Arts
  • Languages and Literature
  • Other Humanities
  • Philosophy, Ethics, and Religion

Appendix 2 – Documentation and other evidence to support your SR&ED claim

It is important to maintain supporting evidence (for example, information, records, documentation) to substantiate that the scientific research and experimental development (SR&ED) work was performed and allowable expenditures have been incurred. The business environment in which SR&ED is carried out will influence the nature and sources of evidence that are available to support the SR&ED claim. If your SR&ED claim is selected for review, you will be asked during the review to support your claim by providing supporting documentation that were generated as the SR&ED was being carried out. Work for which you have no relevant supporting evidence will likely be disallowed.

The following sections are provided to help you identify the type of documents and other items the CRA reviewers generally consider as supporting evidence. However, the lack of detailed documentary information should not discourage you from making an SR&ED claim or be considered as an indication that SR&ED did not take place, particularly in the case of a first-time claimant. In such a case, the CRA should be consulted to help you identify other types of supporting evidence that could be used to support the SR&ED work and the related expenditures.

Supporting the SR&ED work claimed

Most often, supporting evidence is in the form of contemporaneous documents (for example, documents generated as the SR&ED was being carried out). In fact, contemporaneous documentation that is dated, signed, and specific to the work performed are the best supporting evidence that you can provide. If you choose to substantiate the work performed using other evidence, you must ensure that the evidence clearly addresses the questions in Part 2 of Form T661.

Table 1 in this appendix provides a list of examples of documentation and other items that you could use as supporting evidence. Note that the table is only meant to be a tool to help you identify the type of supporting evidence you have to support your claim and to organize your documentation should your claim be selected for review. It is important to note that:

1. The table is not a checklist to determine the eligibility of work as SR&ED. That is, the existence of supporting evidence as listed in the table does not by itself indicate the work is SR&ED. It is the content of that supporting evidence that will determine if the evidence is relevant.
2. The table is not an exhaustive list—other forms of supporting evidence may be relevant.
3. It is not expected that all of the supporting evidence listed in the table would be generated for every SR&ED project. However, some form of relevant supporting evidence must be available to address the questions in Part 2 of Form T661.

Supporting the SR&ED expenditures claimed

You are required to keep complete and organized records that support the expenditures claimed. Requirements for records needed to support financial transactions are set out on the page canada.ca/taxes-records. Typical financial records and documents that may be requested during the financial review include financial statements and records, ledgers, journals, and vouchers. Source documents such as receipts, contracts, and general correspondence may also be requested.

In addition to the above general financial records, SR&ED claimants must keep any related documents and information to support the specific expenditures claimed on Form T661. This includes but is not limited to:

• cost breakdowns per project for each line item in Part 3 of Section B of Form T661;
• the cost allocation method used to allocate labour and overhead expenditures to SR&ED;
• time sheets that support the salary or wages claimed by employees on SR&ED activities;
• contracts and/or agreements related to the SR&ED claim;
• logbooks or other documents that support the use of equipment for SR&ED;
• documents to support third-party payments such as to whom and for what the payments were made;
• supporting schedules such as the reconciliation of amounts on Form T661 to the financial statements;
• schedules to support the SR&ED investment tax credit (ITC) recapture amount; and
• provincial/territorial income tax returns, if applicable.

Other Considerations

Maintaining appropriate supporting evidence will facilitate the review of your claim and help you to substantiate your claim. This is especially important in work environments where both SR&ED and commercial work are taking place. For example, using the project records you have, you should be able to explain and/or demonstrate:

• who did the work claimed and how much time employees spent on SR&ED work;
• how the work claimed was related to the scientific or technological advancement sought;
• how materials were used, the quantities consumed or transformed in SR&ED work, and how materials and products were ultimately disposed of;
• in the case of contracts and/or agreements relating to claimed work, what services or products were provided, who performed the work, where the work took place, as well as who acquired rights to any intellectual property resulting from that work; and
• how the project costs that are attributable to SR&ED work are segregated from those that are for non-SR&ED work, when the SR&ED is carried out in a commercial environment.

Table 1 – Examples of supporting evidence for SR&ED work claimed

Using the Table

• The table is intended to help you identify evidence that supports each of your claimed projects. Therefore, you may wish to complete a table for each project.
• The first column lists some examples of supporting evidence that you may have.
• Each of the five remaining columns corresponds to questions from different lines in Part 2 of Form T661. For each column:
  • Identify the supporting evidence you possess that best addresses the question in that column (for example, by placing a tick mark in the box). More than one type of supporting evidence could be ticked in each column. A shaded box means that generally this type of supporting evidence does not apply to the related lines in the corresponding column.
  • If you have supporting evidence that is not listed in the table, identify it in the row labelled "Others."
• This table is only intended to be an aid; you do not have to complete it or submit it with your claim. However, you may wish to keep it with your project records. Should your claim be selected for review, you will most likely be asked to provide the supporting evidence to the CRA reviewer. Completing the table may help both you and the CRA reviewer identify the supporting evidence.

The following table provides examples of evidence to support SR&ED work claimed.

Tax services offices

The CRA delivers the SR&ED Program through 6 co-ordinating tax services offices.