Can R&D Spending Earn Tax Credits? SR&ED for Foreign-Controlled Companies

How the credits differ for foreign-controlled companies and CCPCs, key points for claiming

Scott Tang, CPAUpdated 2026-11-032026 rules5 min read

Canada's R&D tax credit program is called SR&ED (Scientific Research and Experimental Development), and it is one of Canada's largest business support programs. Foreign-controlled subsidiaries can claim it too; it is just that the rate and the form of the benefit differ from those for qualifying Canadian-controlled private corporations (CCPCs) and eligible Canadian public corporations.

15%

Foreign-controlled subsidiary: federal investment tax credit (ITC) rate on qualified SR&ED expenditures

35%

Enhanced rate for qualifying CCPCs and eligible Canadian public corporations; generally not available to a foreign-controlled private subsidiary

18 months

The latest time after year-end to file a claim; miss it and the credit is lost

How a foreign-controlled subsidiary differs from a CCPC

Item	Foreign-controlled private subsidiary	Qualifying CCPC
Federal ITC rate	15%	35% on spending up to the expenditure limit (limit of up to $6 million, reduced based on taxable capital or revenue, sharing among associated corporations, short tax years, etc.); 15% above the limit
Refundable in cash?	Generally not; can only be used against corporate tax	Credits on current expenditures within the limit are generally fully refundable; credits on capital expenditures are refunded at a lower rate; separate rules apply above the limit
Unused credits	Carry back 3 years, carry forward 20 years	Same as a foreign-controlled subsidiary
Ontario R&D tax credit (ORDTC)	3.5%, can only be used against Ontario corporate tax	3.5%, plus the refundable Ontario Innovation Tax Credit

A foreign-controlled subsidiary can't get a cash refund, so the credit is only useful if the company has taxable profits — a company that is still making losses in its early years carries the credits forward and uses them against tax once it becomes profitable.

What counts as R&D

Technological uncertainty
Using existing knowledge and methods, you can't tell whether it can be done or how to do it — that is what counts. Following an established solution does not.
Systematic experimentation
Form hypotheses, run experiments, record the results and adjust the approach. The process must be documented.
Technological advancement
The result itself can be a failure, but the work must advance understanding of the technology.

Ordinary cosmetic product design, market research and routine quality testing do not count as SR&ED.

Which expenditures qualify

Salaries of R&D staff: employees doing R&D in Canada (the most common item, and the largest share).
Materials: materials consumed or transformed in the R&D.
Contract R&D: amounts paid to contractors in Canada to do R&D, generally included at a set percentage.
Equipment: proposed in the 2024 Fall Economic Statement and confirmed in the 2025 federal budget, capital expenditures qualify again (they had been excluded since 2014). The conditions: the equipment is acquired after December 15, 2024 (new or used equipment both count), and when it is acquired it is intended to be used all or substantially all (generally 90% or more) of its operating time over its useful life for R&D in Canada. Equipment that falls short of 90%, such as equipment shared between R&D and production, can't be counted in full as a capital expenditure; it has to be looked at under the separate shared-use equipment rules.

R&D performed for the parent. Where the results belong to the parent and the parent pays for the work, the subsidiary, as the performer, may be able to claim, but the expenditures that can be included have to be examined item by item: whether the payer is taxable in Canada, the related-party relationship, how contract payments and funding are treated, and whether government assistance has been deducted. You can't simply multiply the total cost of a parent-funded project by 15%. How the contract is drafted makes a big difference, so have it reviewed before signing.

Key points for claiming

1
Record from the start
Projects, hypotheses, experiments and hours, from the beginning of the year
2
Track R&D hours
The time each person spends on R&D
3
Compile after year-end
Gather the expenditures and prepare the technical report
4
Claim with the T2
Form T661, Schedule 31 and the Ontario schedules
5
Within 18 months
18 months after year-end is the final deadline

How Sheng Qian CPA can help

First, is it worth claiming?
We look at your R&D projects and the scale of spending, and work out how much tax the 15% credit for a foreign-controlled subsidiary can offset.
Kept separate in day-to-day bookkeeping
With bookkeeping on the EasyU platform, R&D salaries, materials and contract work are recorded separately, so there is no need to reconstruct them at year-end.
Claimed with the T2
We compile the expenditures and file them, with the Ontario schedules, along with the T2; for the technical report, we work with a dedicated SR&ED consultant.

Sources

CRA: SR&ED Tax Incentives · SR&ED Investment Tax Credit Policy · SR&ED contract expenditures policy
CRA: SR&ED Capital Expenditures Policy · SR&ED updates
Background reading (unofficial): KPMG – What's new in SR&ED · Baker Tilly – SR&ED program changes · Ryan – Ontario SR&ED tax credits

Disclaimer

This article is general information only and is not tax advice. Every company's situation is different; please consult a CPA about your specific arrangements. Service fees are as set out in our written quote.