COVID-19 Impacts on Scientific Research and Experimental Development

With more vaccines coming, it seems the end of the COVID-19 pandemic is in sight. As Canada emerges from the devastation caused by COVID-19, governments at federal, provincial, and municipal levels are looking to reposition their economies toward an environmentally sustainable, science and technology-based future. Governments will look to provide businesses with significant direct and indirect incentives to accomplish this shift and regeneration. The Scientific Research and Experimental Development (SR&ED) tax credit will play a leading role in incentivizing the regeneration. However, while the pandemic has created opportunities for SR&ED eligible activities, the impact of government subsidies on SR&ED expenditure claims must also be considered. In addition, the pandemic has forced the Canada Revenue Agency (CRA) to adapt its approach to verification and compliance.

SR&ED Eligible Expenditures

The impact of COVID-19 on SR&ED claim size is inconsistent across industries. While some corporations will see their SR&ED expenditures decreased because of a reduction in research and development (R&D) activity, others will see their expenditures increase as a result of modifying processes or developing new products in response to the pandemic. 

Examples of situations in industry where SR&ED expenditures have increased during the pandemic include:

  • Corporations adapting existing equipment to manufacture new products that were in high demand because of the pandemic (e.g., hand sanitizer, masks, gowns, ventilators, cleansers, and medical products);
  • Supply chain shortages or material substitutions necessitating development of alternative manufacturing processes;
  • Booming demand in certain markets, such as household items, recreational goods, and cleaning products, driving technology development to increase throughput;
  • Technical employees with reduced workloads taking on R&D or process improvement projects; and
  • Development of digital transformation technologies to support business continuity, while respecting social distancing protocols, including:
            – Technology development to allow employees to work remotely;

            – Development of process automation to replace human activity;

            – E-commerce portal development to accommodate shifts in the scale of simultaneous users; and

            – Monitoring technologies developed to count people in a space or detect body temperatures.

Impact of Emergency Subsidies

Government assistance must be subtracted from eligible SR&ED expenditures claimed if it is in respect of SR&ED activity during the period covered by the subsidy. This includes the Canada Emergency Wage Subsidy (CEWS), the Temporary Wage Subsidy, or any other government grants. However, government assistance may not preclude the benefit of claiming SR&ED. David Douglas, Principal and Practice Leader of the SR&ED practice at Ryan, notes that “To minimize the negative impact of the CEWS subsidy on your SR&ED claim, it is important to analyze the activity going on during each period in which the CEWS was received. The proportion of an employee’s time spent on SR&ED in the period will impact the amount of wage subsidy to be subtracted. If the timing of the SR&ED activity differed from the CEWS period, the government assistance may not need to be subtracted at all.” The CRA has released a guidance paper titled “How the Canada emergency wage subsidy affects SR&ED claims”1 where further information on this issue can be found.


While the CRA has adjusted its audit strategy to be more risk-based and target noncompliance, it has also been forced to adapt its audit methods, with all meetings since March 2020 being virtual, rather than in-person. We expect this new approach to continue until at least the fall. Virtual audits could even become the “new normal” for some industries, such as information technology and computer science, as well as for reviews of the financial aspect of SR&ED claims. 

There has also been an emphasis on faster processing of refundable claims for smaller companies, such as startups. While this has been a welcome development, the CRA reserves the right to review claims in future years. Unfortunately, an improperly prepared SR&ED claim could trigger reviews and processing delays for years to come. By focusing on submitting a claim concurrently with the corporate tax filings, instead of as an amendment, taxpayers can increase their chances of faster processing and reduce the risk of a time-consuming audit. As always, claimants should retain records and documentation to be ready to defend an SR&ED claim in the future.

Looking Ahead 

Some groups have been lobbying the government for enhanced SR&ED refundability to stimulate the economy. However, it is not yet known if or when these enhancements might occur. Australia has led the way in this regard by enhancing the rate and refundable attributes of its investment tax credit. Ryan continues to monitor Canada’s federal and provincial budgets closely for any announcements regarding SR&ED programs, new government grants, and other forms of tax relief designed to encourage innovation. Indeed, a couple of provinces have already announced enhancements to their existing tax credit programs.

Ryan can help determine how pandemic-related changes have impacted your SR&ED expenditures and how to navigate varying situations involving government assistance to ensure your SR&ED claim is both compliant and maximized. In addition, Ryan can review your eligibility for emergency subsidies and government grants, while optimizing your overall tax relief under the SR&ED, CEWS, and other subsidy programs.

Heather Posgate
Director, Scientific Research and Experimental Development

Shaun Button
Manager, Scientific Research and Experimental Development

1 Government of Canada website,