Can my Ontario tech startup claim SR&ED on employee wages?
Yes. An Ontario tech CCPC can claim Scientific Research and Experimental Development (SR&ED) tax credits on the proportion of an employee’s salary devoted to eligible R&D under ITA s. 37 and Regulation 2900. Direct wages qualify at 100%; the proxy method adds a 55% overhead uplift on the wage base in lieu of tracking overhead expenses individually.
Eligibility. The employee must be personally engaged in SR&ED activities (Regulation 2900(4)): experimental development, applied research, or basic research on a technological uncertainty. Time spent on non-SR&ED work (business development, sales calls, customer support) is not claimable.
Two methods. Proxy method (most startups): claim actual SR&ED-eligible wages + 55% x SR&ED-eligible wages as a substitute for tracking overhead expenses. Traditional method: claim actual SR&ED wages + actual overhead (utilities, rent proportion, supplies, contract-work) – requires detailed cost tracking, higher administrative burden.
Example: an Ontario SaaS CCPC has a $150,000-per-year backend engineer who spent 60% of 2026 on eligible technological development. SR&ED-eligible wages = 60% x $150,000 = $90,000. Proxy uplift = 55% x $90,000 = $49,500. Total qualifying pool for that employee = $139,500. Federal refundable ITC (35% CCPC rate) = $48,825. OITC 8% = $11,160. ORDTC 3.5% = $4,882. Total cash-plus-credit benefit from one engineer: about $64,867.
Documentation. Contemporaneous time-tracking records, technical narrative describing the technological uncertainty and systematic investigation, and project records. Documentation must exist at the time the work is done, not reconstructed later.
Note: Contractor payments count too, at 80% of the arm’s-length contract amount (Regulation 2900(2)). Non-arm’s-length contractor SR&ED payments are subject to specific transfer-pricing-style anti-avoidance rules.
Source: canada.ca â SR&ED expenditures
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.