What if we sell our prototype - what costs are eligible for SR&ED tax credits?
You should be able to claim all of the related wages and subcontractor fees, as well as materials "consumed" or "transformed" in the experimental process.
According to the CRA's Application Policy 2004-03: Prototypes, Pilot Plants/Commercial Plants, Custom Products and Commercial Assets:
"Usually the proceeds from the sale of the prototype are less than 10% of the SR&ED project expenditures. The sale is considered to be a sale of scrap materials and will be included in income under section 9 of the Act. As stated in Application Policy SR&ED 2000-04R2, Recapture of Investment Tax Credit, by administrative policy, the ITC recapture rules will not be applied in the case of scrap sales."