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> SR&ED for service companies

> Service-Based Activities That Qualify (With Real Examples)

> Don’t make these common Service Company SR&ED mistakes
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Read time: 3 mins

SR&ED for service companies

Does your startup offer services instead of making products?

Are you planning to start with services and build a product later?

You might be missing out on SR&ED money that you deserve.

Many people think SR&ED is only for companies that make products. This is not true!

Why This Mistake Costs Money

Last year, I met with the founder of a machine learning consulting firm. They were solving cutting-edge problems for clients but had never filed for SR&ED.

"We don't have our own product," they told me. "We just solve problems for clients."

Those problems were worth over $100,000 in tax credits!

This happens in many service areas:

• Consulting firms
• Custom software makers
• Engineering services
• Hotels and restaurants
• Accounting and legal firms

Let me explain why service companies can get SR&ED money too.

What CRA Really Looks For (Not Products)

• Hard problems - when you face issues without clear or publicly available answers
• Testing process - when you solve problems by asking questions, testing guesses, and learning from the results
• New knowledge - when you create new ways to do things

They don't require you to make a product!

Service based activities that qualify (with real examples)

• Using existing tech to innovate under new constraints

A hospitality services company implemented a custom IoT (Internet of Things) solution for a client involving mobile smart hotel rooms and energy management systems.

Why It Qualified: They couldn’t use off-the shelf solutions and had to develop new integration and edge technologies for their client.

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• Welding Process Innovations

A manufacturing services firm developed new welding patterns, in the absence of software based heuristics to maximize strength of welded materials under specific environmental conditions.

Why It Qualified: They had to overcome scientific uncertainties about material behavior under complex conditions.

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• Cross-Client Knowledge Development

A cloud migration consulting firm developed a specialized approach for handling legacy database systems during migration while maintaining data integrity and security.

Why It Qualified: They systematically tackled technical uncertainties in the absence of publicly available information on legacy systems that suffered from poor to no documentation.

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• Creating Internal Tools & Methodologies

An accounting firm built internal software to detect anomalies in financial statements, automate 5% more manual processes than off-the-shelf bookkeeping solutions allow and added a conversational business intelligence layer to empower their fractional CFO partners.

Why It Qualified: The tools involved improving and automating previously manual or inefficient processes by navigating technical uncertainty.

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• Failed Projects (Yes, Really)

A legal firm attempted to develop an AI-powered predictive analytics tool for multi-jurisdictional case outcome prediction and proposing high-confidence litigation strategy. It ultimately failed to achieve the desired performance.

Why It Qualified: The systematic attempt to overcome technological uncertainty is eligible, even if unsuccessful.

And finally - Don’t make these common Service Company SR&ED mistakes

These are the most expensive mistakes I see:

• Client Ownership Confusion

Just because your client owns the final work doesn’t mean you can’t claim SR&ED. It depends on your contract and who took the risk.

• Thinking Failed Projects Don’t Count

Many companies don’t claim SR&ED because “the project didn’t work out.” Remember: SR&ED is about trying to solve hard problems, not just success.

• Not Tracking Your Experiments

Service companies often try many ways to solve problems but don’t write down what they did. This means missing out on SR&ED money!

• Missing Knowledge Across Projects

What you learn from many different client projects can count as advancement - exactly what SR&ED pays for.

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The Bottom Line

Service companies do SR&ED work every day! The difference between getting money back and missing out comes down to knowing the rules and keeping good records.

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