When the CRA Cuts an SR&ED Claim: Review to Appeal
How scientific research and experimental development claims are reviewed, why they are denied, the administrative review, and the objection and Tax Court routes.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
A scientific research and experimental development (SR&ED) claim is reviewed by a research and technology adviser, who judges eligibility, and a financial reviewer, who tests expenditures. If either proposes a reduction, you receive a proposal letter, can respond, can request an administrative review, and can object and appeal to the Tax Court of Canada.
On this page
How does the review work?
| Stage | What happens | Your deadline |
|---|---|---|
| Claim filed | Form T661 and Schedule 31, ideally with the T2 return; reporting deadline is 12 months after the T2 due date, which is 18 months after year-end | 18 months — no extensions |
| Technical review | Adviser assesses eligibility of each project against the "how and why" criteria | Respond to requests promptly |
| Financial review | Reviewer tests salaries, materials, contracts, and the proxy amount | — |
| Proposal letter | Sets out proposed reductions and the reasons | Generally 30 days to respond with written representations |
| Administrative review (Form RC532) | An assistant director checks whether you received due process and whether the review followed SR&ED law and policy — not a second technical review | Signal your intent within the 30-day proposal period; file before the reviewers close the file |
| Notice of assessment | Claim allowed in full, in part, or denied | 90 days to object |
| Tax Court of Canada | Appeal after the objection | 90 days after confirmation |
Why are claims reduced?
- Eligibility. The work did not involve a technological uncertainty that could not be resolved with standard practice, or was not a systematic investigation — routine engineering, commercial production, and trial-and-error without hypotheses fail.
- Documentation. No contemporaneous records of hypotheses, experiments, and results; claims written after the fact from memory.
- Salary allocation. Time claimed for staff who also did non-eligible work without a defensible allocation.
- Contract payments. Work performed outside Canada, or payments to non-arm's length contractors claimed directly instead of through a transfer of the contractor's qualified expenditures on Form T1146.
- Materials. Costs of items that were sold or that became part of commercial product.
What is the administrative review?
A request, on Form RC532 after the proposal package arrives, that the SR&ED assistant director (or a delegate) check whether you were given due process and whether the technical and financial reviews followed current SR&ED legislation and policy. It is not a second technical review and not an objection, and it must be made before the file is closed; once the assessment issues, the 90-day objection deadline runs regardless. It costs nothing.
What wins at the objection or in court?
Project records kept during the work — design documents, test logs, version histories, meeting notes, emails — that show the uncertainty, the approach, and the outcome. The Tax Court applies the same criteria and has allowed claims the CRA denied where the records showed systematic investigation, and denied them where the taxpayer could only testify in general terms.
What is at stake?
Canadian-controlled private corporations earn an enhanced 35 percent refundable credit on up to $6 million of qualified expenditures a year — raised from $3 million for taxation years beginning on or after December 16, 2024, by the Budget 2025 Implementation Act, No. 1 (Royal Assent March 26, 2026) — with the limit phased out as taxable capital employed in Canada rises from $15 million to $75 million. Other corporations generally earn a 15 percent non-refundable credit. A denied claim can mean repaying a refund already received, with interest.
Frequently asked questions
Can I file an SR&ED claim late?
No. The 18-month deadline after the taxation year-end is absolute.
Does a U.S.-owned Canadian corporation qualify?
It can claim the basic 15 percent credit, but the enhanced 35 percent refundable rate requires Canadian-controlled private corporation status, which non-resident control removes.
Should I use a contingency-fee consultant?
Many do; the risk is aggressive claims that invite review. The claim is the corporation's, and the corporation bears the reassessment.
Does the CRA give advance rulings?
Not formally, but the CRA's optional pre-claim approval process will assess, before you start the work or incur costs, whether up to three projects meet the SR&ED definition; each approval is valid for up to three years and does not cover expenditures.
Official sources
The CRA explains: “The CRA’s Standard Timelines for Information Requests outlines the timeframe you will have to provide your response, which is generally 30 days from the date of the proposal letter.” — Canada Revenue Agency, The SR&ED Review Process: A Guide for Claimants, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/technical-review-a-guide-claimants.html
The CRA explains: “The definition describes why and how SR&ED is conducted, which are two key requirements that must both be met for work to be eligible as SR&ED.” — Canada Revenue Agency, Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives, https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/sred-policies-guidelines/guidelines-eligibility-work-sred-tax-incentives.html
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our Canadian Tax Desk prepares the representations and the record for SR&ED reviews and objections. See pricing or book a free fit call.
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