You can only expense Canadian R&D expenses; meaning anything that is not completely used up almost immediately is treated as an asset. This makes almost no difference for software development, but is very important (and disadvantageous) in more capital-intensive industries.
It's 35% of eligible spend on up to $3 million, and 15% above that (15% and 15% if the corporation is not Canadian). Further, most software development simply doesn't qualify-
This is a naive perspective. In reality, most of the software development that a typical growth company does is eligible. As one of CRA’s auditors once told me, “The general arc of your development has to meet the criteria of being technically challenging and uncertain, and you have to follow a generally scientific approach, measuring your results empirically. But if you need a web console to help with that, who are we to say that’s not eligible support work?”
SR&ED had 22,758 applications last year. Software development only accounted for 40% of it. So 9000 applications from software dev firms, the majority being very small firms. That is a tiny, tiny minority of software firms in this country.
>In reality, most of the software development that a typical growth company does is eligible
No, it absolutely is not, unless you are lying on the application. And yes, a lot of people lie to get government grants and subsidies. And it works out pretty good until someone audits it and realizes that someone is making a shitty instrumentation console that absolutely no one would say advances scientific knowledge and demands the credit back plus interest and penalties.
And yes, I've seen people's absolute bullshit SR&ED applications before. I've had peers ask me to review theirs, where they do bog standard bullshit dev but read on HN how super easy it is, and they convince themselves that "everyone is doing it". Only those signatures on the form that lies about what is actually being claimed.
Again, it's awesome...until it isn't. Which is why the vast majority of software firms are not claiming this.
“Vast majority” is literally only one company I have ever heard of in Canada. Slack didn’t bother because they could not claim at the 35% and Andreesen showered them with so much cash it simply wasn’t worth the hassle. But every other software company I have ever had any insight into in Canada claims SR&ED. And not by lying on the forms… Everyone gets audited typically every 3 to 5 years. You can’t make it through an audit with B/S. They are very good at sussing out the bad claims and yes, that is a punishing experience as it should be.
So it means that indirectly, developers' salaries are not a taxable income in Canada if they are working on R&D? Meaning, they do pay taxes on their income, but their employer gets those taxes back, so if tax is 60%, the employer could pay 250% of what they'd pay otherwise, get 150% back, then the developer pays 150% of taxes, and gets 100%, so in effect the salary is tax-free. Is that what you meant to say?
If so, it sounds almost too good to be true. Why aren't all startups in Canada?
We adopt new products less. We are far more risk averse about purchasing goods or services from startups, far more risk averse about funding them (founders often give personal guarantees to get the investment), value the equity startups offer at far less, etc. Government is far more fussy about accountability with that refundable R&D money, so lots of time is spent filling out paperwork and hiring consultants to do it.
Here is a video that explains a lot about Canadian purchasing:
I don’t think this is uniquely Canadian. And it’s usually semi-rational, if you really hate dealing with switching. Most cheaper subscription providers will give you a good deal at first, then jack up the prices when they’re bought by a major provider. New cheaper providers are founded, and the cycle continues. The cheaper prices last for two or three years, or similarly short. Most people would rather take the loss than having to pay attention to this stuff.
The cultural bit is underrated. Tobias Lütke from Germany is the co-founder and CEO of Shopify has written about this issue of Canadian business culture extensively. Also, the ecosystem of VCs in the US are unmatched globally. And, the internal market in US is f'ing huge.
Yeah, I never thought of it that way. Your plan sounds great, but, in practice how it works is you get paid about half of what you would get in the US. Currently less than half due to the unusual currency exchange rates.
There are many limits on SR&ED, and the reporting/auditing process is burdensome. Canada also suffers from a variety of other inconveniences, mostly related to its dependence on resource extraction-related industries.
It’s not terrible in comparison to the scale of the benefit. Just outsource the report writing to KPMG or another capable and reputable accounting firm and you’ll survive audits and it won’t kill your team. I would say over the years, SRED has helped us become better at managing the efficiency of dev.
Honestly, this is a not true. If you work with a decent accounting firm like KPMG’s Vancouver practice, and maintain a decent dev task management system like JIRA, you will be fine to hand over your payroll register and a CSV dump every January. A few weeks later, you have your claim. Once in a while, you have to sit there and talk with the CRA’s auditor.
You have a conjecture that all companies keep good jira task tracking and payroll, AND that all companies contract out big accounting firms like KPMG.
From my personal experience I have been at two Canadian companies who didn’t claim SR&ED and therefore your conjecture is disproven with counter examples.
Some companies don’t keep good enough task tracking, some companies don’t know about SR&ED, some companies think the paperwork and auditing is burdensome, some companies are just lazy.
There is something similar in France, the Crédit Impôts Recherche (CIR), I remember it was around 50%. I've heard it's going to disappear though, there were abuses.
Hi, CIR expert here, it's well and alive. There has been a communication push against it last year but relatively over.
It's 30% of R&D expenses as a tax cut.
Update: I think the 50% you mention is related to non salary expenses CII = a smaller similar system for innovation, which we differentiate from R&D. CII used to cover non salary expenses with a 50% forfait but this part has been removed indeed. It still covers 20% of salary expenses.
It's quite common knowledge :) if you want journalist material, I think there was a Cash Investigation on the topic a few years ago.
I have discussed this topic with many other engineers (known from engineering school, from working 13+ years in the Paris tech startup ecosystem and from my worker union, whose scope include most tech companies) and I have never heard any of them saying they did not write bullshit CIR reports for bullshit projects. I have myself written my fair share of those bullshit reports. There are even companies whose business is to write the bullshit reports for you in exchange for x% of your CIR credit. I worked with such company.
My experience is different, so far I've defended R&D that I believed to be eligible to tax credits, in order for companies to be competitive with other countries that also subsidize R&D and innovation, namely USA and Canada.
You can't generalize a 7 billion tax cut system based on one journalist work (the same and the same is quoted again...), opinions based on a few rotten fruits in the basket, and an anti-startup trend that amplifies this hatred for political and ideological reasons.
My experience, from 20 years as well, aligns with widespread abuses. Pretty much the whole financial sector is sponsored by the CIR, none of which contribute anything beyond the bullshit reports mentioned above. I myself wrote countless reports like that, most of them vastly autogenerated to look pompous.
I don't remember having to defend anything to get the CIR, it's more of a judgment call on whether you feel confident to defend it if you get an audit, and these are very rare. We've had such audit in the past, and it made everyone rewrite each submitted report in a hurry to make them look more serious. No sanction were applied.
At this point, my opinion is that the CIR has very little to do with actual research, but rather it's a discretionary tax subsidy for sectors in which France wants to be competitive.
It's not only the tech startups, I've mentioned it because that's what a know best, but my brother works for a large industrial company, and they use the same tricks and also have their reports done by professional bullshit companies whose jobs is to make it look like some research happened (in their case it's sometimes somewhat the case - unlike tech startups - but most of it is just bullshit).
It's also capricious. I've been in companies doing legitimate r&d who would spend man months preparing for the CIR only to get it rejected, while they got it in previous years for much less interesting work.
Meanwhile in one of the world's higest taxed welfare states, where you absolutely can deduct 100% of SW developer salaries I feel I've been taking crazy pills every time reading these threads. It's almost as if some folks in """Hacker""" News wanted this law to stay to further cement gigantic incumbents and make it impossible for bootstrapped companies to compete.
I hate to see this, but you’re comparing two completely different systems.
Like it or not, but Canada is much more “socialist”, you can’t expect it in any case to be like US or viceversa.
I saw a chart that added the market value of government support to income for US persons, and it used the term "household resources." I'd like to see a table of household resource distributions for Canada and the US.
Canada is "much more socialist" in that it has socialized medical insurance. Aside from that, it's maybe a tiny bit more socialist, though one could argue it's not more socialist at all.
The systems are different, but saying they are completely different is really a stretch. There's a GST that the US doesn't have, which is, ironically, a regressive tax. If you ranked the tax code of countries by similarity to the US tax code, I'm not sure Canada would be at the top of the list, but it wouldn't be that far down.
I suppose it takes living in both countries to really just whether Canada is “much” more socialist. The US has a lot of socialism in the form of generous disability income replacement programs, Medicare and Medicaid, SNAP, and the like. Canadian provinces must implement a single payor medical insurance program within certain parameters, but dentistry - bar a very new and very small federal program - is fully private. And pharmaceutical pricing is largely free market.
When you zoom in on some of the Big Beautiful Bill’s new programs, they appear more “socialist” than anything Canadians have ever enjoyed.
Canada is much more socialist, in your take, so it has more programs for corporations and private enterprise? Huh? This is nonsensical.
Further, it's incredibly difficult to quantify countries on this purported socialism scale. Sure, Canada has universal healthcare like every single developed country but the US, but otherwise it's much more of a mixed bag. The US has always been vastly more "socialist" than its advocates think -- the military is a colossal make work project and is straight out of Soviet doctrine for central planning -- and of course the entire agricultural industry exists under a massive subsidization regime, but under the current administration....whoa.... There is no Western country that has a central planned economy, with a president that is taking direct control of corporations (US Steel) and demanding ownership of corporations (TikTok), while enlisting private executives as members of the military exactly like China (https://www.theguardian.com/technology/2025/jun/25/meta-exec...), all while saying the entire economy is a "store" that he has sole control over. Absolutely no one in the US, looking very Stalinesque ala the late 1930s, should be throwing stones about socialism.
