How to stretch R&D budgets with IDMTC and SR&ED

IDMTC is a payroll-driven credit. It covers salaries and wages for design, artwork, animation, programming, project management, and testing. In BC, eligible labour must exceed $100,000 annually and be paid to employees working in the province. SR&ED is broader, covering materials, equipment, and manufacturing processes. A digital media company might claim IDMTC against its core development team while routing more capital-intensive efforts through SR&ED. The allocation can shift year to year as products mature from research toward commercialization.

"It's something you have to be really strategic about above and beyond the day-to-day of an in-house finance team," Davenport said. "You need to talk to experts to understand R&D tax credit strategy. It's so nuanced, and it's so specific."

The AI wrapper trap

Davenport offered a warning: not every AI product qualifies automatically. "It's very easy to hang your hat on an AI wrapper today. That's not going to get you any credits down the line." The key distinction is whether the company tackles genuine technological uncertainty and builds something net new, rather than simply layering existing AI tools into a product.

What confirms the strategy: documented technical work from day one, clear allocation of labour hours between IDMTC and SR&ED eligible activities, and a third-party review before year-end filing. What weakens it: claiming expenses that don't meet residency or wage thresholds, assuming all R&D is automatically SR&ED, or treating AI integration as a novel problem when it's just implementing existing APIs.

Start thinking about non-dilutive funding before any R&D begins. Explore grants and tax credits early. Document technical work from the first day. Bring in tax-credit expertise before year-end filing season. Without planning, Davenport said, "You're leaving money on the table every time."