SR&ED Claims for Manufacturing Companies
Your factory floor is an R&D lab. New materials, process improvements, tooling development, product prototyping, quality control breakthroughs and production optimization all qualify for SR&ED tax credits. We identify the eligible work, prepare the technical narrative, calculate the expenditures and file the claim with CRA. 35% refundable for CCPCs.
What Is the SR&ED Tax Credit and Why Manufacturers Should Claim It
The SR&ED program rewards Canadian businesses that advance technology through systematic investigation. For manufacturers, this means the experimental work you do every day to improve processes, develop new products, solve material challenges and optimize production can generate substantial tax credits from the federal and Ontario governments.
Most manufacturers assume SR&ED is only for tech companies or pharmaceutical labs. It is not. If your engineering team is running trials to reduce scrap rates, testing new alloys or composites, developing custom tooling, optimizing CNC programs for materials that behave unpredictably, or prototyping products where the manufacturing method is uncertain, that work qualifies.
| SR&ED Element | For Manufacturing Companies |
|---|---|
| Federal ITC rate (CCPC) | 35% refundable on the first $3,000,000 of qualifying expenditures. CRA sends a cheque regardless of whether you owe tax. |
| Ontario Innovation Tax Credit (OITC) | 8% non-refundable on eligible Ontario SR&ED expenditures. Applied against Ontario tax owing. |
| Who qualifies | Any CCPC performing work that advances technology through systematic investigation. No minimum company size. Machine shops, plastics manufacturers, food processors, metal fabricators, electronics assemblers and custom manufacturers all qualify. |
| Filing deadline | 18 months after fiscal year-end. A manufacturer with a December 31 year-end has until June 30 of the second following year. |
| Refund timeline | CRA typically processes SR&ED refunds in 60 to 120 days after filing. Manufacturing claims with materials consumed may take 90 to 180 days. |
Manufacturing Is the Most Under-Claimed Sector for SR&ED: CRA's own data shows that manufacturing companies file fewer SR&ED claims per eligible company than any other R&D-intensive sector. The reason: manufacturers do not think of their process improvements and product development as "research." But when your team spends three months testing welding parameters on a new aluminum alloy to achieve acceptable tensile strength, that is systematic experimental development. When you redesign a die to reduce flash by 40% through a series of controlled trials, that is SR&ED. The credit exists for exactly this kind of work.
For a complete overview of our SR&ED service across all industries, visit our SR&ED Tax Credit Claims page. For ongoing manufacturing accounting and tax advisory, see our manufacturing accounting services.
What Manufacturing Work Qualifies for SR&ED
| Qualifies for SR&ED | Does NOT Qualify |
|---|---|
| Developing a new manufacturing process where the outcome is uncertain (e.g., testing parameters to achieve a target tolerance, surface finish or material property that existing methods cannot reliably produce) | Running an established manufacturing process with known parameters and predictable outcomes |
| Testing new materials, alloys, composites or coatings where the material's behaviour during manufacturing is unknown (e.g., machinability, weldability, formability, heat treatment response) | Substituting one known material for another with published manufacturing data |
| Designing and developing custom tooling, jigs, fixtures or dies where the design requires experimental iteration to meet functional requirements | Purchasing standard tooling from a catalogue or replicating a proven die design |
| Prototyping a new product where the manufacturing method, material selection or assembly process requires systematic experimentation to determine feasibility | Manufacturing a product to a customer's engineering drawing using standard processes |
| Optimizing production processes to achieve a measurable improvement (yield, scrap rate, cycle time, energy consumption) through controlled experiments and systematic investigation | Making minor adjustments to machine settings based on operator experience without systematic testing |
| Developing quality control methods for a new product or material where existing inspection techniques are inadequate (e.g., developing non-destructive testing protocols for a new composite) | Applying standard quality control procedures (CMM inspection, visual inspection) to known products |
| Scaling a process from prototype to production where the scale-up introduces technical uncertainties not encountered at bench scale (e.g., heat distribution, flow dynamics, dimensional stability) | Increasing production volume using the same proven process with no scale-related technical challenges |
| Developing automation or robotic integration where the application requires solving technical problems beyond the capabilities of the standard equipment and programming | Programming a robot using the manufacturer's standard software and documented procedures for a standard application |
Process Improvement Is the Hidden Gold Mine: Many manufacturers focus only on new product development when thinking about SR&ED. But process improvement is equally eligible and often represents more qualifying expenditure. If your team ran 30 trials to reduce the scrap rate on a stamping operation from 8% to 2% by modifying die geometry, blank holder pressure and lubrication, that systematic experimentation is SR&ED. The trials, measurements, analysis and conclusions constitute a technological advancement in manufacturing, even though no new product was created. We identify process improvement projects that most other SR&ED consultants miss.
How Our SR&ED Claim Process Works for Manufacturers
Four steps. We handle CRA. You keep manufacturing.
Assess
We walk your shop floor, interview your engineers and review your project files to identify all qualifying SR&ED work. Free assessment.
Document
We prepare the technical narrative for each project: the technological uncertainty, the systematic trials, the hypotheses tested and the advancement achieved.
Calculate
We calculate eligible expenditures: engineering salaries, shop floor wages, materials consumed in trials, subcontractor fees and overhead.
File and Defend
We file Form T661 with CRA, respond to any RTA review and defend the claim through to refund deposit.
Free SR&ED Eligibility Assessment for Manufacturers
We visit your facility, identify qualifying projects and tell you the estimated credit. No obligation. No upfront fee.
Eligible SR&ED Expenditures for Manufacturing Companies
| Expenditure Category | What Qualifies in Manufacturing | How We Calculate It |
|---|---|---|
| Engineering and technical staff salaries | Gross salary of engineers, process technicians, tool and die makers, quality engineers, R&D managers and production staff directly performing or supporting qualifying SR&ED work. | Time allocated between SR&ED projects and routine production work. Time sheets, project logs and supervisor interviews used to determine allocation percentages. |
| Shop floor labour (direct SR&ED work) | Wages of machinists, welders, assemblers and operators who perform trial runs, prototype builds or experimental production for SR&ED projects. | Hours tracked per trial run or prototype build. Labour cost per hour applied to qualifying hours only. Routine production hours excluded. |
| Materials consumed in R&D | Raw materials, components, chemicals and consumables used up or transformed during SR&ED trials that cannot be sold as finished goods. Scrap from experimental runs. Prototype materials that are destroyed during testing. | Material costs tracked per project. Bill of materials for each trial run documented. Scrap from experimental runs separated from production scrap. This is the largest expenditure category unique to manufacturing SR&ED. |
| Subcontractor fees | Payments to external labs, testing facilities, material suppliers providing R&D services, universities or contract engineers. 80% of qualifying subcontractor fees are eligible. | Subcontractor invoices reviewed. Only the R&D portion qualifies. Testing, analysis and experimental work included. Production work excluded. 80% rule applied. |
| Overhead (proxy method) | 55% of qualifying salary expenditures added as proxy overhead. Covers rent, utilities, shop floor overhead, supervision and indirect costs. No individual tracking required. | Automatic calculation. $400,000 in qualifying salaries and wages x 55% = $220,000 proxy overhead. |
Worked Example: Custom Metal Fabricator
| Item | Total | SR&ED Eligible |
|---|---|---|
| 2 process engineers at $95,000 average | $190,000 | $114,000 (60% time on qualifying projects) |
| Tool and die maker (dedicated to R&D tooling) | $85,000 | $68,000 (80% on qualifying tooling development) |
| Shop floor labour (trial runs, prototypes) | $240,000 (total shop) | $48,000 (20% of total shop hours on SR&ED trials) |
| Materials consumed in trials (steel, aluminum, tooling steel, consumables) | $180,000 (total material) | $36,000 (scrap, prototypes, test samples not sold) |
| External testing lab (material analysis, metallurgical testing) | $25,000 | $20,000 (80% rule) |
| Subtotal eligible expenditures | $286,000 | |
| Proxy overhead (55% of salaries and wages: $230,000 x 55%) | $126,500 | |
| Total qualified expenditures | $412,500 | |
| Federal ITC (35% refundable) | $144,375 | |
| Ontario OITC (8% non-refundable) | $33,000 | |
| Total SR&ED benefit | $177,375 |
$177,375 Back from the Government: This mid-size metal fabricator with $3M in annual revenue and a two-person engineering team receives $144,375 in refundable federal credits (deposited as cash) plus $33,000 in Ontario credits. The federal refund covers 1.5 years of a process engineer's salary. Most of this claim comes from process improvement work the company was already doing but had never claimed. Materials consumed in trials (the $36,000 in scrap, prototypes and test samples) is the expenditure category that manufacturers miss most often because they treat R&D scrap the same as production scrap.
Materials Consumed: The Expenditure Category Manufacturers Miss
For tech companies, SR&ED is almost entirely salaries. For manufacturers, materials consumed in R&D can represent 15% to 40% of the total claim. CRA allows you to claim the cost of materials that are consumed, destroyed or transformed during SR&ED work and cannot be sold as finished goods. This includes prototype materials, trial run scrap, test samples, consumables used in experiments and materials destroyed during destructive testing.
| Material Type | Eligible? | Key Rule |
|---|---|---|
| Raw material used in a trial run that produces scrap (e.g., steel blanks run through experimental stamping parameters that produce out-of-spec parts) | Yes | The cost of the material is eligible because the trial run was part of SR&ED and the resulting parts cannot be sold. Document the trial, the parameters and the scrap disposition. |
| Prototype materials that are destroyed during testing (e.g., tensile test samples, fatigue test coupons, drop-test prototypes) | Yes | Materials destroyed in the course of testing are consumed in SR&ED. The destruction must be part of the systematic investigation. |
| Chemicals, coatings, adhesives or treatments used in experimental processes | Yes | Consumables used in R&D trials are eligible. Track quantities used per trial separately from production quantities. |
| Prototype that is retained by the customer or sold as a finished good | No | If the prototype is sold or delivered to a customer, the material cost is NOT eligible. CRA considers it a product, not consumed material. Only materials with no commercial value after the SR&ED work qualify. |
| Material purchased for R&D but not yet used | No (not yet) | Material must be consumed during the claim period. Inventory held for future R&D is not eligible until it is actually used in a qualifying activity. |
Track R&D Scrap Separately from Production Scrap: CRA requires that materials consumed in SR&ED be documented separately from normal production waste. If you run 50 trial stamping cycles and produce 50 scrap parts, those 50 parts must be identified as SR&ED scrap in your records, not mixed into the general scrap bin. Photograph the scrap, log the trial number, record the material cost and note why the parts were non-conforming. Without this documentation, CRA will deny the material cost on review. We set up a tracking system for every manufacturing client at onboarding.
Types of Manufacturing Companies We File SR&ED Claims For
| Manufacturing Sector | Common SR&ED-Eligible Work | Typical Annual Claim |
|---|---|---|
| Metal fabrication and machining | New alloy machining parameters, tooling development, welding process optimization (laser, TIG, MIG on new materials), surface finish improvement, CNC program development for complex geometries | $80,000 to $250,000 |
| Plastics and injection moulding | Mould design optimization (cooling channels, gate location, venting), new resin formulation trials, cycle time reduction, warpage and shrinkage control, multi-material overmoulding development | $60,000 to $200,000 |
| Food and beverage processing | New product formulation (shelf life, texture, nutritional profile), process optimization (pasteurization, fermentation, extrusion), packaging development, scale-up from pilot to production | $50,000 to $180,000 |
| Electronics and PCB assembly | SMT process optimization for new component types, thermal management solutions, EMI/EMC compliance through design iteration, miniaturization challenges, automated test development | $60,000 to $200,000 |
| Automotive parts and components | New material qualification for OEM requirements, lightweighting trials, forming process development for advanced high-strength steel (AHSS), coating and treatment development for corrosion resistance | $100,000 to $400,000 |
| Aerospace and defence | Composite layup process development, non-destructive testing method development, tight-tolerance machining of exotic alloys (Inconel, titanium), additive manufacturing process validation | $150,000 to $500,000 |
| Custom and contract manufacturing | Developing manufacturing solutions for client products where the process, tooling or material is novel. Each new customer project may contain SR&ED-eligible work. | $40,000 to $150,000 |
| Building materials and construction products | New product formulation (concrete, insulation, cladding), fire resistance testing, energy efficiency optimization, environmental compliance (VOC reduction), durability testing | $50,000 to $200,000 |
We work with manufacturers across all sectors in Ontario. For ongoing manufacturing accounting, bookkeeping, HST filing and inventory management, visit our manufacturing accounting services.
Not Sure If Your Manufacturing R&D Qualifies? We Assess for Free.
We visit your facility, walk the shop floor with your engineers and identify every qualifying SR&ED project. No cost. No obligation.
The Technical Narrative for Manufacturing SR&ED Claims
The technical narrative is where most manufacturing SR&ED claims are won or lost. CRA's Research Technology Advisors evaluate the narrative to determine whether the work meets the three-part test: technological uncertainty, systematic investigation and technological advancement. Manufacturing narratives require a different approach than software or pharmaceutical narratives.
| Narrative Element | What CRA Expects for Manufacturing | Common Manufacturing Mistake |
|---|---|---|
| Technological uncertainty | "Standard welding parameters for 6061-T6 aluminum produce porosity above 3% in this joint geometry. Published weld procedure specifications do not address this configuration. The acceptable porosity level for this application is below 0.5%." | Writing "we needed to weld aluminum" without specifying why existing methods were insufficient. |
| Systematic investigation | "We designed a 24-run experiment varying wire feed speed (4 levels), shielding gas mixture (3 levels) and travel speed (2 levels). Each combination was tested with 3 replicates. X-ray inspection was used to measure porosity. Results were analysed using DOE (Design of Experiments) methodology." | Writing "we tried different settings until it worked" without describing the experimental design. |
| Technological advancement | "The optimal parameters were identified: wire feed at 280 ipm, 95% argon / 5% helium shield gas and 22 ipm travel speed. Porosity was reduced to 0.3%, below the 0.5% target. This parameter set is not published in existing welding literature for this joint configuration." | Describing the final product features instead of the process knowledge gained. |
| Contemporaneous documentation | Trial logs with dates, parameters, measurements and results. Shop floor notes. Quality inspection reports. Material test certificates. Photos of test samples. Design iteration records. | Writing the narrative at year-end from memory with no supporting trial data. |
We Write Manufacturing Narratives That Pass CRA Review: Our team understands both manufacturing processes and CRA's SR&ED evaluation criteria. We interview your engineers, review trial data, examine quality records and translate the shop floor work into a narrative that satisfies CRA's Research Technology Advisors. Manufacturers who write their own narratives frequently describe the product ("we made a bracket") instead of the process advancement ("we developed welding parameters for a joint geometry with no published procedure"). The distinction between product description and technological advancement is why most DIY manufacturing claims are reduced or denied.
The 10 SR&ED Mistakes Manufacturing Companies Make
| # | Mistake | What It Costs | How We Prevent It |
|---|---|---|---|
| 1 | Not claiming SR&ED at all ("we are just a machine shop, not a research lab") | $50,000 to $300,000+ per year in unclaimed credits. Manufacturing is the most under-claimed sector. | Free shop floor assessment. We walk your facility and identify every qualifying project your engineers are already doing. |
| 2 | Not claiming materials consumed in R&D trials | 15% to 40% of the total claim value missed. $20,000 to $80,000 in credits left on the table. | R&D scrap tracking system set up at onboarding. Trial materials documented per project with costs, quantities and disposition. |
| 3 | Mixing R&D scrap with production scrap | CRA denies the entire materials consumed claim on review. No documentation = no credit. | Separate scrap tracking. Photos, trial numbers, material costs and non-conformance reasons logged for every experimental run. |
| 4 | Writing the narrative in product language instead of process language | Claim denied or reduced by 50%+. CRA funds process advancement, not product descriptions. | Narrative focuses on the manufacturing process uncertainty, experimental approach and process knowledge gained. |
| 5 | Not allocating shop floor labour to SR&ED projects | Machinists, welders and operators who run trial jobs are eligible. Excluding their wages misses $10,000 to $50,000 in credits. | Shop floor hours tracked per trial run. Labour cost allocated to SR&ED projects based on actual hours. |
| 6 | Missing the 18-month filing deadline | Claim forfeited permanently. Manufacturing claims often take longer to prepare due to material tracking. | Filing deadline tracked from year-end. Data collection starts during the fiscal year, not after. |
| 7 | Not claiming subcontractor testing and analysis fees at 80% | External metallurgical testing, material analysis and contract engineering fees left unclaimed. | Every external lab and testing invoice reviewed. Qualifying R&D services claimed at 80%. |
| 8 | Claiming routine quality control as SR&ED | Claim denied. CRA flags routine QC as ineligible. May trigger enhanced scrutiny on future claims. | Every project screened against CRA's eligibility test. Routine QC excluded. Only novel QC method development included. |
| 9 | No contemporaneous trial documentation | Claim denied at CRA review. Reconstructed data from memory is rejected by RTAs. | Lightweight trial log template provided at onboarding. Engineers record parameters, measurements and results during each trial. |
| 10 | DIY filing without SR&ED expertise | Manufacturing claims require both process engineering knowledge and CRA SR&ED language. DIY claims are reduced or denied at a significantly higher rate. | Every claim prepared by our team with manufacturing and SR&ED expertise. Narrative, expenditure and material calculations reviewed before filing. |
SR&ED Pricing for Manufacturing Companies
Contingency-based. You pay only when CRA approves your refund.
| Service | Fee | Includes |
|---|---|---|
| SR&ED claim preparation and filing | 15% to 20% of the approved credit (contingency) | Facility assessment, project identification, technical narrative, expenditure calculation (salaries, labour, materials consumed, subcontractors), Form T661 filing, CRA correspondence |
| Retainer (for large or multi-project claims) | $1,000 upfront + contingency on approval | Same as above, plus dedicated SR&ED specialist, multi-project coordination, materials consumed tracking setup and CRA review preparation |
| Free eligibility assessment | $0 | Shop floor visit. We walk your facility with your engineers, identify qualifying projects and estimate the credit. No obligation. |
| CRA review and audit defence | Included | RTA meeting preparation, engineer coaching, financial documentation package, materials consumed evidence, objection filing if claim is reduced |
| R&D scrap tracking setup | Included | We configure a tracking system for materials consumed in SR&ED: trial logs, scrap documentation, cost allocation and photo protocols |
| Annual T2 corporate tax return | FREE | Included for every SR&ED and bookkeeping client. SR&ED claim filed alongside the T2. |
For ongoing manufacturing bookkeeping, inventory costing, HST filing and tax advisory, visit our manufacturing accounting services page. For our SR&ED process across all industries, see our SR&ED tax credit claims page.
No Upfront Cost. We Get Paid When You Get Paid.
Contingency-based SR&ED for manufacturers. 15% to 20% of the approved credit. Free shop floor assessment. CRA defence included.
SR&ED Claims for Manufacturers: Cities We Serve
We file SR&ED claims for manufacturing companies across every Ontario city and Canada. No distance limits, no extra fees.
Frequently Asked Questions: SR&ED for Manufacturers
Your Factory Floor Is an R&D Lab. Get Paid for It.
Gondaliya CPA files SR&ED claims for manufacturing companies across Canada. 35% refundable credit. Materials consumed included. Contingency pricing. CRA defence included. 900+ five-star reviews.