Most CTOs know SR&ED tax incentive program exists. Far fewer understand exactly which of their team's eligible work qualifies, or why Canada Revenue Agency is scrutinizing AI and ML claims more closely than ever. This guide cuts through the complexity: What the project eligibility criteria actually mean for your organization, how the 2026 program enhancements affect what you can claim, and what your team needs to be doing right now to protect your claims in the event of a review.
What Qualifies as SR&ED: The Technical Reality
The SR&ED eligibility test has three components, and all three must be satisfied:
Technological advancement. Your project must generate new scientific knowledge that advances the understanding of science or technology. This entails not using existing technology, but creating something genuinely new or improving existing capabilities beyond what's currently known.
Technological uncertainty. The experimental development work must involve a problem that couldn't be resolved through standard practice or routine engineering. If a competent professional in your field already knows how to solve the problem, it's not SR&ED.
Systematic investigation. The work must be conducted through a structured process of hypothesis, experimentation, and analysis; not ad hoc trial and error.
What this means practically: custom feature development, standard integrations, and routine bug fixes generally don't qualify. But genuinely novel algorithmic work, performance optimization that pushes beyond known benchmarks, new architectural approaches to scalability, and experimental model training for novel applications typically do qualify as eligible work.
For AI and ML work in particular, CRA has increased scrutiny in 2026. The supporting documentation bar is higher not because eligibility criteria changed, but because CRA has seen enough poorly supported claims in this category to pay closer attention.
The 2026 Enhancements That Matter to Your Team
Capital equipment is now claimable. This is the change with the most direct impact on engineering-heavy organizations. Capital expenditures may be claimed where a company acquires depreciable property intended to be used 90% or more in the performance of SR&ED in Canada. Servers, specialized computing hardware, testing equipment, lease costs and lab infrastructure acquired after December 16, 2024 may now be eligible as allowable expenditures both for the income deduction and the investment tax credit (ITC).
The expenditure limit doubled. The annual expenditure limit for the enhanced 35% refundable credit increased from $3 million to $6 million, meaning qualifying companies can now access up to $2.1 million in refundable credits annually. For engineering-intensive organizations spending heavily on research and development labour and equipment, this is a material change to your potential return. Companies may also be eligible for non-refundable tax credits depending on their structure and qualified expenditures.
Faster CRA processing. Starting April 2026, Canada Revenue Agency will use AI to identify low-risk claims for faster processing, with a service standard target of 45 days for refundable claims and 90 calendar days for pre-approved claims. Well-documented claims will move through financial review faster, while more complex claims may take up to 180 calendar days.
Pre-Claim Approval is now available. For large or novel research and development projects, the new voluntary Pre-Claim Approval process (also known as pre-claim consultation) lets you get CRA technical sign-off before you file. For multi-year R&D programs (like a new ML model architecture or a ground-up infrastructure rebuild), this eliminates years of uncertainty about whether the work will qualify.
What Your Engineering Team Needs to Be Doing Right Now
The most common reason strong SR&ED expenditures claims get reduced or denied isn't eligibility; it's documentation. Here's what the CRA looks for during a review meeting or virtual review, and what your team's workflow should reflect to meet filing requirements:
Contemporaneous records. If your engineers are writing SR&ED narratives at filing time rather than capturing them during the year, that's a gap worth closing before your next claim. Sprint notes, technical design documents, test logs, commit messages that describe what was being investigated and why; all of this constitutes contemporaneous documentation. Retro-reconstructed narratives are a major audit trigger. The T4088 guide provides detailed information on what constitutes acceptable documentation standards.
Document the uncertainty, not just the outcome. For each qualifying project, you need records that answer: what was the technical uncertainty, what approaches did you try, what did you observe, and what did you change as a result? This is especially critical for AI and ML work. For AI and ML claims, CRA consistently asks for the distinction between investigation and implementation; specifically, what was the technical uncertainty, what was tried, what was observed, and what was changed. The T4088 guide provides detailed information on what constitutes acceptable documentation standards.
Separate qualifying work from non-qualifying work. Not everything your team does qualifies, and mixed documentation creates problems. Projects should be scoped and tracked in a way that separates SR&ED-eligible experimental work from routine development, integration, and maintenance.
Track time accurately. Labour is typically the largest component of an SR&ED claim. Employee time allocations need to be defensible, ideally tracked in real time rather than estimated at year-end. Whether you use the traditional method or proxy method for calculating SR&ED expenditures, accurate time tracking for both regular employees and any specified employees is essential. This becomes particularly important when preparing your income tax return and meeting reporting deadlines at your tax year end.
Why the Right Partner Matters
The technical narrative in your T661 filing is where most claims succeed or fail. Translating your engineering team's work into language that meets CRA's eligibility framework requires both technical understanding and SR&ED expertise. A generic accountant or a fully automated platform can't do this well; one lacks the technical literacy, the other lacks the judgment to make nuanced qualification calls. Having experienced support is also critical if you need to navigate the objection process or dispute resolution with CRA.
Boast's SR&ED specialists include engineers and technical experts who understand what your team is actually building. They review every claim, identify qualifying activities your team may have overlooked (including newly eligible capital expenditures), and build documentation practices into your engineering workflow so you're audit-ready from day one; not scrambling to reconstruct records when CRA comes calling for an on-site visit or financial review. Our team ensures all filing requirements and reporting deadlines are met, and that your claim properly accounts for any government assistance received.
Since 2011, Boast has helped 2,000+ companies secure over $900M in R&D tax credits across North America, with a 100% audit defense commitment and SOC II-compliant documentation standards built into every claim. We work with companies across diverse sectors, from software and AI to manufacturing industries including steel fabrication, precast concrete production, and companies developing innovative welding techniques and construction methods to address challenges like poor ground conditions.
Want to know what your engineering work actually qualifies for? Book a technical review with a Boast SR&ED specialist. We'll help you understand your eligible work, maximize your qualified expenditures, and ensure you're leveraging this valuable tax incentive program to its full potential.
About Boast: Boast is a Vancouver-based R&D tax credit platform that combines AI-powered technology with specialized human expertise to help Canadian and U.S. companies maximize their access to non-dilutive government funding. Founded in 2011, Boast has served 2,000+ companies and secured $900M+ in R&D tax credits across North America.
