The HVAC sector is driven by innovation as owners of large buildings seek to optimize indoor environments while maintaining efficient systems and meeting regulatory requirements. HVAC manufacturers and contractors and controls companies must continually evolve their products and service to ensure they remain competitive in a fast-moving marketplace.
Some HVAC innovation activities might qualify for the CRA’s scientific research and experimental development (SR&ED) tax credit program.
The Government of Canada offers a generous tax credit to HVAC companies carrying out R&D work to improve systems and processes.
Which HVAC projects qualify for SR&ED?
Research projects that seek to resolve a technological uncertainty through systematic experimentation may qualify for the SR&ED tax credit.
Is your HVAC project potentially eligible for SR&ED? Try our eligibility assessment tool for an initial indication.
HVAC Projects that could be eligible for the SR&ED tax credit
Companies specializing in HVAC have historically represented an established category of the SR&ED claims that the CRA reviews each year. Examples of HVAC development projects that could be eligible for this program are:
Cold-climate heat pump development
Stimulated by Canada’s building decarbonization efforts, a controls company is developing an air-source heat pump that can maintain high efficiency during the Canadian winter, even when temperatures fall below -25C.
The research team faces a technological uncertainty relating to a new refrigerant cycle they have developed. They don’t know if it can maintain heating capacity at extremely low temperatures.
Another technological uncertainty that they are facing concerns the control of frost buildup without excessive energy use.
And there is a third technological uncertainty about whether it’s possible to maintain compressor reliability under severe operating conditions.
Activities in this heat pump development project that are potentially eligible for SR&ED in Canada include:
- designing alternative refrigerant circuits
- testing compressor configurations
- building prototype units
- conducting environmental chamber testing
- measuring performance under various weather conditions
All of these involve systematic experimentation to achieve technological advancement.
The controls company brings in an external SR&ED consultant at an early stage of this heat pump project. This allows it to manage the project in a way that optimizes the claim.
A redesign to meet a change in refrigerant regulations
The government changes refrigerant regulations to phase down high GWP refrigerants. An HVAC manufacturer responds by developing a new rooftop HVAC unit.
There are technological uncertainties in the project, namely whether the new refrigerant can achieve sufficient cooling performance, and whether the company’s existing compressor design is still viable.
Although the research project is a response to a regulatory change by the Canadian Government, this doesn’t make it eligible for the SR&ED program. The HVAC redesign project is potentially eligible for SR&ED because it involves experimentation to resolve technological challenges.
Other HVAC SR&ED areas
As well as cold-climate heat pumps and low-GWP refrigerants, the HVAC projects commonly eligible for SR&ED in 2026 often fall into these categories:
- AI-driven HVAC optimisation
- heat recovery technologies
- indoor air quality innovations
- building decarbonization technologies
- energy storage integration
- commercial and industrial process HVAC systems
Development of software for power monitoring or to control a system can be eligible for the SR&ED tax credit, and indeed software dev projects are one of the largest categories accepted by the CRA. Our advisers can assist in creating an appropriate IT software development workflow for the program, as described in our post.
Can my company claim the SR&ED tax credit if the research was not successful?
An R&D project that fails to develop a commercially viable system or that cannot be scaled can still be eligible for SR&ED. Even failed attempts to resolve an uncertainty involve experimentation that may generate new technological knowledge, including knowledge about why particular approaches don’t work.
Also note – your business does not have to be making a profit to file an SR&ED claim and have it accepted by the CRA.
Use our calculator to find out how much your SR&ED claim could be worth.
Why work with Canadian SR&ED?
Getting advice from Canadian SR&ED allows you to leverage external expertise to complement your internal tax and technical teams. We work on a fee-on-success basis, so this is a low-risk method of accessing professional guidance about the SR&ED program.
We have a proven track record, filing more than 1,000 successful claims on behalf of our clients.
Get in touch for a confidential assessment with one of our SR&ED consultants.
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