From e2556fb1591ab0bf3ca45bbed2968a2bdfc7fa3d Mon Sep 17 00:00:00 2001
From: Jonathan Ogilvie <jonathan.ogilvie@sumologic.com>
Date: Thu, 18 Sep 2025 16:31:21 -0400
Subject: [PATCH 1/2] Fix claim derived-resource lookups by label; fixes #26

Signed-off-by: Jonathan Ogilvie <jonathan.ogilvie@sumologic.com>
---
 cmd/diff/diff_integration_test.go             |  37 ++----
 .../diffprocessor/diff_calculator_test.go     |  30 ++---
 cmd/diff/diffprocessor/diff_processor.go      |   2 +-
 cmd/diff/diffprocessor/processor_config.go    |   4 +-
 cmd/diff/diffprocessor/resource_manager.go    | 107 ++++++++++++++----
 .../diffprocessor/resource_manager_test.go    |   4 +-
 .../existing-claim-downstream-resource.yaml   |   8 +-
 7 files changed, 121 insertions(+), 71 deletions(-)

diff --git a/cmd/diff/diff_integration_test.go b/cmd/diff/diff_integration_test.go
index 69e4af1..fff44d2 100644
--- a/cmd/diff/diff_integration_test.go
+++ b/cmd/diff/diff_integration_test.go
@@ -61,31 +61,6 @@ func TestDiffIntegration(t *testing.T) {
 	_ = pkgv1.AddToScheme(scheme)
 	_ = extv1.AddToScheme(scheme)
 
-	// TODO:  is there a reason to even run this against v1 if everything is backwards compatible?
-	// claims are still here (for now).  we obviously need to keep tests for those.
-	// we've already removed the deprecated environmentconfig version.
-	// I can see running the ITs against v2 since we can test against an old image.  important to IT against v1 image
-	// given changes to move xp specific stuff into spec.crossplane, which will not be reflected in running these tests
-
-	// TODO:  add a test to cover v2 CompositeResourceDefinition (XRD) if running against Crossplane v2
-	// TODO:  add a test to cover namespaced xrds against v2
-	// update:  these ITs don't run against a version of xp besides what they are compiled against.  that'll matter
-	// in the e2es.
-	// we'll want to rig up some way to specify xrd-v1 or xrd-v2 or both in the test cases
-	// but the rub is that the cluster directory containing the crds is pulled from either v1 or v2, so we can't just
-	// run both.
-	// thinking we should just grab the cluster directory for v1 and check it in, since it won't advance anymore once
-	// v2 is out.  v2 we can update at build time.  every test spins up its own envtest with the crd path, so we can
-	// definitely toggle there.
-
-	// the CRDs that support the XRDs will vary based on the Crossplane version, though (namespaced vs cluster scoped),
-	// so we need to bifurcate /testdata/diff/crds accordingly.  although each XRD that we define will have a version
-	// specified inside it which will lead to the generation of that crd.  so maybe it's test specific actually.
-
-	// TODO:  namespaced XRDs cannot compose cluster-scoped resources, so we need to ensure XDownstreamResource definitions
-	// account for that.  maybe we just need to add parallel CRDs for namespace scoped and cluster scoped XRDs that can
-	// coexist.
-
 	// Test cases
 	tests := map[string]struct {
 		setupFiles              []string
@@ -1042,16 +1017,20 @@ Summary: 2 added`,
 +   coolField: modified-value
 
 ---
-~~~ XDownstreamResource/test-claim
+~~~ XDownstreamResource/test-claim-82crv
   apiVersion: nop.example.org/v1alpha1
   kind: XDownstreamResource
   metadata:
     annotations:
       crossplane.io/composition-resource-name: nop-resource
-    generateName: test-claim-
+-   generateName: test-claim-82crv-
     labels:
-      crossplane.io/composite: test-claim
-    name: test-claim
+      crossplane.io/claim-name: test-claim
+      crossplane.io/claim-namespace: existing-namespace
+-     crossplane.io/composite: test-claim-82crv
+-   name: test-claim-82crv
++     crossplane.io/composite: test-claim
++   name: test-claim
   spec:
     forProvider:
 -     configData: existing-value
diff --git a/cmd/diff/diffprocessor/diff_calculator_test.go b/cmd/diff/diffprocessor/diff_calculator_test.go
index 81f6c85..ce89714 100644
--- a/cmd/diff/diffprocessor/diff_calculator_test.go
+++ b/cmd/diff/diffprocessor/diff_calculator_test.go
@@ -83,7 +83,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -113,7 +113,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -144,7 +144,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -182,7 +182,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -212,7 +212,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -238,7 +238,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -309,7 +309,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -455,7 +455,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -491,7 +491,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -529,7 +529,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -572,7 +572,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -629,7 +629,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -762,7 +762,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -791,7 +791,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -817,7 +817,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
diff --git a/cmd/diff/diffprocessor/diff_processor.go b/cmd/diff/diffprocessor/diff_processor.go
index 5c9f5db..885ce83 100644
--- a/cmd/diff/diffprocessor/diff_processor.go
+++ b/cmd/diff/diffprocessor/diff_processor.go
@@ -71,7 +71,7 @@ func NewDiffProcessor(k8cs k8.Clients, xpcs xp.Clients, opts ...ProcessorOption)
 	diffOpts := config.GetDiffOptions()
 
 	// Create components using factories
-	resourceManager := config.Factories.ResourceManager(k8cs.Resource, config.Logger)
+	resourceManager := config.Factories.ResourceManager(k8cs.Resource, xpcs.Definition, config.Logger)
 	schemaValidator := config.Factories.SchemaValidator(k8cs.Schema, xpcs.Definition, config.Logger)
 	requirementsProvider := config.Factories.RequirementsProvider(k8cs.Resource, xpcs.Environment, config.RenderFunc, config.Logger)
 	diffCalculator := config.Factories.DiffCalculator(k8cs.Apply, xpcs.ResourceTree, resourceManager, config.Logger, diffOpts)
diff --git a/cmd/diff/diffprocessor/processor_config.go b/cmd/diff/diffprocessor/processor_config.go
index 1b2ea48..ce57c4d 100644
--- a/cmd/diff/diffprocessor/processor_config.go
+++ b/cmd/diff/diffprocessor/processor_config.go
@@ -32,7 +32,7 @@ type ProcessorConfig struct {
 // ComponentFactories contains factory functions for creating processor components.
 type ComponentFactories struct {
 	// ResourceManager creates a ResourceManager
-	ResourceManager func(client k8.ResourceClient, logger logging.Logger) ResourceManager
+	ResourceManager func(client k8.ResourceClient, defClient xp.DefinitionClient, logger logging.Logger) ResourceManager
 
 	// SchemaValidator creates a SchemaValidator
 	SchemaValidator func(schema k8.SchemaClient, def xp.DefinitionClient, logger logging.Logger) SchemaValidator
@@ -86,7 +86,7 @@ func WithRenderFunc(renderFn RenderFunc) ProcessorOption {
 }
 
 // WithResourceManagerFactory sets the ResourceManager factory function.
-func WithResourceManagerFactory(factory func(k8.ResourceClient, logging.Logger) ResourceManager) ProcessorOption {
+func WithResourceManagerFactory(factory func(k8.ResourceClient, xp.DefinitionClient, logging.Logger) ResourceManager) ProcessorOption {
 	return func(config *ProcessorConfig) {
 		config.Factories.ResourceManager = factory
 	}
diff --git a/cmd/diff/diffprocessor/resource_manager.go b/cmd/diff/diffprocessor/resource_manager.go
index 97d7d87..8a73641 100644
--- a/cmd/diff/diffprocessor/resource_manager.go
+++ b/cmd/diff/diffprocessor/resource_manager.go
@@ -5,6 +5,7 @@ import (
 	"fmt"
 	"strings"
 
+	xp "github.com/crossplane-contrib/crossplane-diff/cmd/diff/client/crossplane"
 	k8 "github.com/crossplane-contrib/crossplane-diff/cmd/diff/client/kubernetes"
 	apierrors "k8s.io/apimachinery/pkg/api/errors"
 	metav1 "k8s.io/apimachinery/pkg/apis/meta/v1"
@@ -28,15 +29,17 @@ type ResourceManager interface {
 
 // DefaultResourceManager implements ResourceManager interface.
 type DefaultResourceManager struct {
-	client k8.ResourceClient
-	logger logging.Logger
+	client    k8.ResourceClient
+	defClient xp.DefinitionClient
+	logger    logging.Logger
 }
 
 // NewResourceManager creates a new DefaultResourceManager.
-func NewResourceManager(client k8.ResourceClient, logger logging.Logger) ResourceManager {
+func NewResourceManager(client k8.ResourceClient, defClient xp.DefinitionClient, logger logging.Logger) ResourceManager {
 	return &DefaultResourceManager{
-		client: client,
-		logger: logger,
+		client:    client,
+		defClient: defClient,
+		logger:    logger,
 	}
 }
 
@@ -186,22 +189,48 @@ func (m *DefaultResourceManager) lookupByComposite(ctx context.Context, composit
 		return nil, false, nil
 	}
 
-	// Create a label selector to find resources managed by this composite
-	labelSelector := metav1.LabelSelector{
-		MatchLabels: map[string]string{
-			"crossplane.io/composite": composite.GetName(),
-		},
+	// Determine the appropriate label selector based on whether the composite is a claim
+	var labelSelector metav1.LabelSelector
+	var lookupName string
+	isCompositeAClaim := m.isClaimResource(ctx, composite)
+
+	if isCompositeAClaim {
+		// For claims, we need to find the XR that was created from this claim
+		// The downstream resources will have labels pointing to that XR
+		// We'll use the claim labels to find downstream resources
+		labelSelector = metav1.LabelSelector{
+			MatchLabels: map[string]string{
+				"crossplane.io/claim-name":      composite.GetName(),
+				"crossplane.io/claim-namespace": composite.GetNamespace(),
+			},
+		}
+		lookupName = composite.GetName()
+		m.logger.Debug("Using claim labels for resource lookup",
+			"claim", composite.GetName(),
+			"namespace", composite.GetNamespace())
+	} else {
+		// For XRs, use the composite label
+		labelSelector = metav1.LabelSelector{
+			MatchLabels: map[string]string{
+				"crossplane.io/composite": composite.GetName(),
+			},
+		}
+		lookupName = composite.GetName()
+		m.logger.Debug("Using composite label for resource lookup",
+			"composite", composite.GetName())
 	}
 
-	// Look up resources with the composite label
+	// Look up resources with the appropriate label selector
 	resources, err := m.client.GetResourcesByLabel(ctx, gvk, namespace, labelSelector)
 	if err != nil {
-		return nil, false, errors.Wrapf(err, "cannot list resources for composite %s", composite.GetName())
+		return nil, false, errors.Wrapf(err, "cannot list resources for %s %s",
+			map[bool]string{true: "claim", false: "composite"}[isCompositeAClaim], lookupName)
 	}
 
 	if len(resources) == 0 {
-		m.logger.Debug("No resources found with composite owner label",
-			"composite", composite.GetName())
+		m.logger.Debug("No resources found with owner labels",
+			"lookupName", lookupName,
+			"isClaimLookup", isCompositeAClaim)
 		return nil, false, nil
 	}
 
@@ -287,6 +316,26 @@ func (m *DefaultResourceManager) hasMatchingResourceName(annotations map[string]
 	return false
 }
 
+// isClaimResource checks if the resource is a claim type by attempting to find an XRD that defines it as a claim.
+func (m *DefaultResourceManager) isClaimResource(ctx context.Context, resource *un.Unstructured) bool {
+	if m.defClient == nil {
+		// If no definition client is available, assume it's not a claim
+		return false
+	}
+
+	gvk := resource.GroupVersionKind()
+
+	// Try to find an XRD that defines this resource type as a claim
+	_, err := m.defClient.GetXRDForClaim(ctx, gvk)
+	if err != nil {
+		m.logger.Debug("Resource is not a claim type", "gvk", gvk.String(), "error", err)
+		return false
+	}
+
+	m.logger.Debug("Resource is a claim type", "gvk", gvk.String())
+	return true
+}
+
 // UpdateOwnerRefs ensures all OwnerReferences have valid UIDs.
 func (m *DefaultResourceManager) UpdateOwnerRefs(parent *un.Unstructured, child *un.Unstructured) {
 	// if there's no parent, we are the parent.
@@ -349,7 +398,9 @@ func (m *DefaultResourceManager) UpdateOwnerRefs(parent *un.Unstructured, child
 		"newCount", len(updatedRefs))
 }
 
-// updateCompositeOwnerLabel updates the crossplane.io/composite label on the child.
+// updateCompositeOwnerLabel updates the ownership labels on the child resource.
+// For Claims, it sets claim-name and claim-namespace labels.
+// For XRs, it sets the composite label.
 func (m *DefaultResourceManager) updateCompositeOwnerLabel(parent, child *un.Unstructured) {
 	if parent == nil {
 		return
@@ -361,18 +412,36 @@ func (m *DefaultResourceManager) updateCompositeOwnerLabel(parent, child *un.Uns
 		labels = make(map[string]string)
 	}
 
-	// Set the composite owner label
 	parentName := parent.GetName()
 	if parentName == "" && parent.GetGenerateName() != "" {
 		// For XRs with only generateName, use the generateName prefix
 		parentName = parent.GetGenerateName()
 	}
 
-	if parentName != "" {
+	if parentName == "" {
+		return
+	}
+
+	// Check if the parent is a claim
+	ctx := context.Background()
+	isParentAClaim := m.isClaimResource(ctx, parent)
+
+	switch {
+	case isParentAClaim:
+		// For claims, set claim-specific labels (all claims are namespaced)
+		labels["crossplane.io/claim-name"] = parentName
+		labels["crossplane.io/claim-namespace"] = parent.GetNamespace()
+		m.logger.Debug("Updated claim owner labels",
+			"claimName", parentName,
+			"claimNamespace", parent.GetNamespace(),
+			"child", child.GetName())
+	default:
+		// For XRs, set the composite label
 		labels["crossplane.io/composite"] = parentName
-		child.SetLabels(labels)
 		m.logger.Debug("Updated composite owner label",
-			"label", parentName,
+			"composite", parentName,
 			"child", child.GetName())
 	}
+
+	child.SetLabels(labels)
 }
diff --git a/cmd/diff/diffprocessor/resource_manager_test.go b/cmd/diff/diffprocessor/resource_manager_test.go
index efb9770..723180f 100644
--- a/cmd/diff/diffprocessor/resource_manager_test.go
+++ b/cmd/diff/diffprocessor/resource_manager_test.go
@@ -265,7 +265,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 		t.Run(name, func(t *testing.T) {
 			// Create the resource manager
 			resourceClient := tt.setupResourceClient()
-			rm := NewResourceManager(resourceClient, tu.TestLogger(t, false))
+			rm := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
 
 			// Call the method under test
 			current, isNew, err := rm.FetchCurrentObject(ctx, tt.composite, tt.desired)
@@ -435,7 +435,7 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 	for name, tt := range tests {
 		t.Run(name, func(t *testing.T) {
 			// Create the resource manager
-			rm := NewResourceManager(tu.NewMockResourceClient().Build(), tu.TestLogger(t, false))
+			rm := NewResourceManager(tu.NewMockResourceClient().Build(), nil, tu.TestLogger(t, false))
 
 			// Need to create a copy of the child to avoid modifying test data
 			child := tt.child.DeepCopy()
diff --git a/cmd/diff/testdata/diff/resources/existing-claim-downstream-resource.yaml b/cmd/diff/testdata/diff/resources/existing-claim-downstream-resource.yaml
index 0e07989..47a0544 100644
--- a/cmd/diff/testdata/diff/resources/existing-claim-downstream-resource.yaml
+++ b/cmd/diff/testdata/diff/resources/existing-claim-downstream-resource.yaml
@@ -3,10 +3,12 @@ kind: XDownstreamResource
 metadata:
   annotations:
     crossplane.io/composition-resource-name: nop-resource
-  generateName: test-claim-
+  generateName: test-claim-82crv-
   labels:
-    crossplane.io/composite: test-claim
-  name: test-claim
+    crossplane.io/composite: test-claim-82crv
+    crossplane.io/claim-name: test-claim
+    crossplane.io/claim-namespace: existing-namespace
+  name: test-claim-82crv
 spec:
   forProvider:
     configData: existing-value

From 146670c80ea607a1c207a6ef126f4ddba7220b5d Mon Sep 17 00:00:00 2001
From: Jonathan Ogilvie <jonathan.ogilvie@sumologic.com>
Date: Thu, 18 Sep 2025 17:33:54 -0400
Subject: [PATCH 2/2] Fix claim derived-resource lookups by label; fixes #26

Signed-off-by: Jonathan Ogilvie <jonathan.ogilvie@sumologic.com>
---
 .../client/crossplane/definition_client.go    |  19 +++
 .../crossplane/definition_client_test.go      | 116 +++++++++++++++
 .../diffprocessor/diff_calculator_test.go     |  30 ++--
 cmd/diff/diffprocessor/diff_processor.go      |   4 +-
 cmd/diff/diffprocessor/resource_manager.go    |  24 +---
 .../diffprocessor/resource_manager_test.go    | 134 +++++++++++++++++-
 cmd/diff/diffprocessor/schema_validator.go    |  20 +--
 .../diffprocessor/schema_validator_test.go    |  85 -----------
 cmd/diff/testutils/mock_builder.go            |   6 +
 cmd/diff/testutils/mocks.go                   |  26 ++--
 10 files changed, 304 insertions(+), 160 deletions(-)

diff --git a/cmd/diff/client/crossplane/definition_client.go b/cmd/diff/client/crossplane/definition_client.go
index 8cbce13..529e108 100644
--- a/cmd/diff/client/crossplane/definition_client.go
+++ b/cmd/diff/client/crossplane/definition_client.go
@@ -28,6 +28,9 @@ type DefinitionClient interface {
 
 	// GetXRDForXR finds the XRD that defines the given XR type
 	GetXRDForXR(ctx context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error)
+
+	// IsClaimResource checks if the given resource is a claim type
+	IsClaimResource(ctx context.Context, resource *un.Unstructured) bool
 }
 
 // DefaultDefinitionClient implements DefinitionClient.
@@ -210,3 +213,19 @@ func (c *DefaultDefinitionClient) GetXRDForXR(ctx context.Context, gvk schema.Gr
 
 	return nil, errors.Errorf("no XRD found that defines XR type %s", gvk.String())
 }
+
+// IsClaimResource checks if the given resource is a claim type by attempting
+// to find an XRD that defines it as a claim.
+func (c *DefaultDefinitionClient) IsClaimResource(ctx context.Context, resource *un.Unstructured) bool {
+	gvk := resource.GroupVersionKind()
+
+	// Try to find an XRD that defines this resource type as a claim
+	_, err := c.GetXRDForClaim(ctx, gvk)
+	if err != nil {
+		c.logger.Debug("Resource is not a claim type", "gvk", gvk.String(), "error", err)
+		return false
+	}
+
+	c.logger.Debug("Resource is a claim type", "gvk", gvk.String())
+	return true
+}
diff --git a/cmd/diff/client/crossplane/definition_client_test.go b/cmd/diff/client/crossplane/definition_client_test.go
index cfbfbbf..ce8798c 100644
--- a/cmd/diff/client/crossplane/definition_client_test.go
+++ b/cmd/diff/client/crossplane/definition_client_test.go
@@ -626,3 +626,119 @@ func TestDefaultDefinitionClient_Initialize(t *testing.T) {
 		})
 	}
 }
+
+func TestDefaultDefinitionClient_IsClaimResource(t *testing.T) {
+	ctx := t.Context()
+
+	tests := map[string]struct {
+		reason       string
+		mockResource tu.MockResourceClient
+		cachedXRDs   []*un.Unstructured
+		resource     *un.Unstructured
+		expected     bool
+	}{
+		"ResourceIsClaim": {
+			reason: "Should return true when resource is a claim type",
+			mockResource: *tu.NewMockResourceClient().
+				WithSuccessfulInitialize().
+				Build(),
+			cachedXRDs: []*un.Unstructured{
+				// Create a mock XRD that defines this as a claim
+				tu.NewResource("apiextensions.crossplane.io/v1", "CompositeResourceDefinition", "testclaims.example.org").
+					WithSpecField("group", "example.org").
+					WithSpecField("names", map[string]interface{}{
+						"kind":     "XTestResource",
+						"plural":   "xtestresources",
+						"singular": "xtestresource",
+					}).
+					WithSpecField("claimNames", map[string]interface{}{
+						"kind":     "TestClaim",
+						"plural":   "testclaims",
+						"singular": "testclaim",
+					}).
+					Build(),
+			},
+			resource: tu.NewResource("example.org/v1", "TestClaim", "test-claim").
+				InNamespace("default").
+				Build(),
+			expected: true,
+		},
+		"ResourceIsNotClaim": {
+			reason: "Should return false when resource is not a claim type",
+			mockResource: *tu.NewMockResourceClient().
+				WithSuccessfulInitialize().
+				Build(),
+			cachedXRDs: []*un.Unstructured{
+				// Create a mock XRD that defines this as an XR (no claimNames)
+				tu.NewResource("apiextensions.crossplane.io/v1", "CompositeResourceDefinition", "testxrs.example.org").
+					WithSpecField("group", "example.org").
+					WithSpecField("names", map[string]interface{}{
+						"kind":     "TestXR",
+						"plural":   "testxrs",
+						"singular": "testxr",
+					}).
+					// No claimNames field
+					Build(),
+			},
+			resource: tu.NewResource("example.org/v1", "TestXR", "test-xr").
+				InNamespace("default").
+				Build(),
+			expected: false,
+		},
+		"GetXRDForClaimError": {
+			reason: "Should return false when GetXRDForClaim fails",
+			mockResource: *tu.NewMockResourceClient().
+				WithSuccessfulInitialize().
+				WithListResourcesFailure("list error").
+				Build(),
+			cachedXRDs: nil, // Force GetXRDs to fail
+			resource: tu.NewResource("example.org/v1", "TestResource", "test-resource").
+				Build(),
+			expected: false, // Should return false on error
+		},
+		"NoMatchingXRD": {
+			reason: "Should return false when no matching XRD exists",
+			mockResource: *tu.NewMockResourceClient().
+				WithSuccessfulInitialize().
+				Build(),
+			cachedXRDs: []*un.Unstructured{
+				// Create an XRD that doesn't match our resource
+				tu.NewResource("apiextensions.crossplane.io/v1", "CompositeResourceDefinition", "otherclaims.example.org").
+					WithSpecField("group", "example.org").
+					WithSpecField("names", map[string]interface{}{
+						"kind":     "XOtherResource",
+						"plural":   "xotherresources",
+						"singular": "xotherresource",
+					}).
+					WithSpecField("claimNames", map[string]interface{}{
+						"kind":     "OtherClaim",
+						"plural":   "otherclaims",
+						"singular": "otherclaim",
+					}).
+					Build(),
+			},
+			resource: tu.NewResource("example.org/v1", "TestClaim", "test-claim").
+				Build(),
+			expected: false,
+		},
+	}
+
+	for name, tt := range tests {
+		t.Run(name, func(t *testing.T) {
+			c := &DefaultDefinitionClient{
+				resourceClient: &tt.mockResource,
+				logger:         tu.TestLogger(t, false),
+				xrds:           tt.cachedXRDs,
+				xrdsLoaded:     tt.cachedXRDs != nil, // Only mark as loaded if we have cached XRDs
+			}
+
+			// Call the function under test
+			result := c.IsClaimResource(ctx, tt.resource)
+
+			// Check the result
+			if result != tt.expected {
+				t.Errorf("\n%s\nIsClaimResource() = %v, want %v", tt.reason, result, tt.expected)
+			}
+		})
+	}
+}
diff --git a/cmd/diff/diffprocessor/diff_calculator_test.go b/cmd/diff/diffprocessor/diff_calculator_test.go
index ce89714..0bd6074 100644
--- a/cmd/diff/diffprocessor/diff_calculator_test.go
+++ b/cmd/diff/diffprocessor/diff_calculator_test.go
@@ -83,7 +83,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -113,7 +113,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -144,7 +144,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -182,7 +182,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -212,7 +212,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -238,7 +238,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -309,7 +309,7 @@ func TestDefaultDiffCalculator_CalculateDiff(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -455,7 +455,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -491,7 +491,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -529,7 +529,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -572,7 +572,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -629,7 +629,7 @@ func TestDefaultDiffCalculator_CalculateDiffs(t *testing.T) {
 					Build()
 
 				// Create resource manager
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -762,7 +762,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -791,7 +791,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
@@ -817,7 +817,7 @@ func TestDefaultDiffCalculator_CalculateRemovedResourceDiffs(t *testing.T) {
 
 				// Create a resource manager (not directly used in this test)
 				resourceClient := tu.NewMockResourceClient().Build()
-				resourceManager := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+				resourceManager := NewResourceManager(resourceClient, tu.NewMockDefinitionClient().Build(), tu.TestLogger(t, false))
 
 				return applyClient, resourceTreeClient, resourceManager
 			},
diff --git a/cmd/diff/diffprocessor/diff_processor.go b/cmd/diff/diffprocessor/diff_processor.go
index 885ce83..bc904c2 100644
--- a/cmd/diff/diffprocessor/diff_processor.go
+++ b/cmd/diff/diffprocessor/diff_processor.go
@@ -41,6 +41,7 @@ type DiffProcessor interface {
 type DefaultDiffProcessor struct {
 	fnClient             xp.FunctionClient
 	compClient           xp.CompositionClient
+	defClient            xp.DefinitionClient
 	config               ProcessorConfig
 	schemaValidator      SchemaValidator
 	diffCalculator       DiffCalculator
@@ -80,6 +81,7 @@ func NewDiffProcessor(k8cs k8.Clients, xpcs xp.Clients, opts ...ProcessorOption)
 	processor := &DefaultDiffProcessor{
 		fnClient:             xpcs.Function,
 		compClient:           xpcs.Composition,
+		defClient:            xpcs.Definition,
 		config:               config,
 		schemaValidator:      schemaValidator,
 		diffCalculator:       diffCalculator,
@@ -222,7 +224,7 @@ func (p *DefaultDiffProcessor) DiffSingleResource(ctx context.Context, res *un.U
 	// WORKAROUND for https://github.com/crossplane/crossplane/issues/6782
 	// Propagate namespace from XR to namespaced managed resources
 	// For claims (v1 compatibility), skip namespace propagation entirely as all managed resources are cluster-scoped
-	isClaimRoot := p.schemaValidator.IsClaimResource(ctx, xrUnstructured)
+	isClaimRoot := p.defClient.IsClaimResource(ctx, xrUnstructured)
 	if !isClaimRoot {
 		p.propagateNamespacesToManagedResources(ctx, xrUnstructured, desired.ComposedResources)
 	} else {
diff --git a/cmd/diff/diffprocessor/resource_manager.go b/cmd/diff/diffprocessor/resource_manager.go
index 8a73641..1f8e29b 100644
--- a/cmd/diff/diffprocessor/resource_manager.go
+++ b/cmd/diff/diffprocessor/resource_manager.go
@@ -192,7 +192,7 @@ func (m *DefaultResourceManager) lookupByComposite(ctx context.Context, composit
 	// Determine the appropriate label selector based on whether the composite is a claim
 	var labelSelector metav1.LabelSelector
 	var lookupName string
-	isCompositeAClaim := m.isClaimResource(ctx, composite)
+	isCompositeAClaim := m.defClient.IsClaimResource(ctx, composite)
 
 	if isCompositeAClaim {
 		// For claims, we need to find the XR that was created from this claim
@@ -316,26 +316,6 @@ func (m *DefaultResourceManager) hasMatchingResourceName(annotations map[string]
 	return false
 }
 
-// isClaimResource checks if the resource is a claim type by attempting to find an XRD that defines it as a claim.
-func (m *DefaultResourceManager) isClaimResource(ctx context.Context, resource *un.Unstructured) bool {
-	if m.defClient == nil {
-		// If no definition client is available, assume it's not a claim
-		return false
-	}
-
-	gvk := resource.GroupVersionKind()
-
-	// Try to find an XRD that defines this resource type as a claim
-	_, err := m.defClient.GetXRDForClaim(ctx, gvk)
-	if err != nil {
-		m.logger.Debug("Resource is not a claim type", "gvk", gvk.String(), "error", err)
-		return false
-	}
-
-	m.logger.Debug("Resource is a claim type", "gvk", gvk.String())
-	return true
-}
-
 // UpdateOwnerRefs ensures all OwnerReferences have valid UIDs.
 func (m *DefaultResourceManager) UpdateOwnerRefs(parent *un.Unstructured, child *un.Unstructured) {
 	// if there's no parent, we are the parent.
@@ -424,7 +404,7 @@ func (m *DefaultResourceManager) updateCompositeOwnerLabel(parent, child *un.Uns
 
 	// Check if the parent is a claim
 	ctx := context.Background()
-	isParentAClaim := m.isClaimResource(ctx, parent)
+	isParentAClaim := m.defClient.IsClaimResource(ctx, parent)
 
 	switch {
 	case isParentAClaim:
diff --git a/cmd/diff/diffprocessor/resource_manager_test.go b/cmd/diff/diffprocessor/resource_manager_test.go
index 723180f..75d6da5 100644
--- a/cmd/diff/diffprocessor/resource_manager_test.go
+++ b/cmd/diff/diffprocessor/resource_manager_test.go
@@ -68,6 +68,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 
 	tests := map[string]struct {
 		setupResourceClient func() *tu.MockResourceClient
+		defClient           *tu.MockDefinitionClient
 		composite           *un.Unstructured
 		desired             *un.Unstructured
 		wantIsNew           bool
@@ -80,6 +81,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					WithResourcesExist(existingResource).
 					Build()
 			},
+			defClient:      tu.NewMockDefinitionClient().Build(),
 			composite:      nil,
 			desired:        existingResource.DeepCopy(),
 			wantIsNew:      false,
@@ -92,6 +94,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					WithResourceNotFound().
 					Build()
 			},
+			defClient:      tu.NewMockDefinitionClient().Build(),
 			composite:      nil,
 			desired:        tu.NewResource("example.org/v1", "TestResource", "non-existent").Build(),
 			wantIsNew:      true,
@@ -104,6 +107,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					WithResourceNotFound().
 					Build()
 			},
+			defClient:      tu.NewMockDefinitionClient().Build(),
 			composite:      nil,
 			desired:        tu.NewResource("example.org/v1", "XR", "new-xr").Build(),
 			wantIsNew:      true,
@@ -116,6 +120,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					WithResourceNotFound().
 					Build()
 			},
+			defClient:      tu.NewMockDefinitionClient().Build(),
 			composite:      nil,
 			desired:        resourceWithGenerateName,
 			wantIsNew:      true,
@@ -144,6 +149,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					}).
 					Build()
 			},
+			defClient: tu.NewMockDefinitionClient().Build(),
 			composite: parentXR,
 			desired: tu.NewResource("example.org/v1", "TestResource", "").
 				WithLabels(map[string]string{
@@ -172,6 +178,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					}).
 					Build()
 			},
+			defClient: tu.NewMockDefinitionClient().Build(),
 			composite: parentXR,
 			desired: tu.NewResource("example.org/v1", "ComposedResource", "composed-resource").
 				WithLabels(map[string]string{
@@ -191,6 +198,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					WithResourceNotFound().
 					Build()
 			},
+			defClient: tu.NewMockDefinitionClient().Build(),
 			composite: parentXR,
 			desired: tu.NewResource("example.org/v1", "Resource", "resource-name").
 				WithLabels(map[string]string{
@@ -223,6 +231,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					}).
 					Build()
 			},
+			defClient: tu.NewMockDefinitionClient().Build(),
 			composite: parentXR,
 			desired: tu.NewResource("example.org/v1", "TestResource", "").
 				WithLabels(map[string]string{
@@ -246,6 +255,7 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 					}).
 					Build()
 			},
+			defClient: tu.NewMockDefinitionClient().Build(),
 			composite: parentXR,
 			desired: tu.NewResource("example.org/v1", "ComposedResource", "").
 				WithLabels(map[string]string{
@@ -259,13 +269,62 @@ func TestDefaultResourceManager_FetchCurrentObject(t *testing.T) {
 			wantIsNew: true,  // Fall back to creating a new resource
 			wantErr:   false, // We handle the error gracefully
 		},
+		"ClaimResource_FoundByClaimLabels": {
+			setupResourceClient: func() *tu.MockResourceClient {
+				// Create an existing resource with claim labels
+				existingClaimResource := tu.NewResource("example.org/v1", "ComposedResource", "claim-managed-resource").
+					WithSpecField("field", "value").
+					WithLabels(map[string]string{
+						"crossplane.io/claim-name":      "test-claim",
+						"crossplane.io/claim-namespace": "test-namespace",
+					}).
+					WithAnnotations(map[string]string{
+						"crossplane.io/composition-resource-name": "resource-a",
+					}).
+					Build()
+
+				return tu.NewMockResourceClient().
+					WithResourceNotFound(). // Direct lookup fails
+					WithGetResourcesByLabel(func(_ context.Context, _ schema.GroupVersionKind, _ string, sel metav1.LabelSelector) ([]*un.Unstructured, error) {
+						// Check if looking up by claim labels
+						if claimName, exists := sel.MatchLabels["crossplane.io/claim-name"]; exists && claimName == "test-claim" {
+							if claimNS, exists := sel.MatchLabels["crossplane.io/claim-namespace"]; exists && claimNS == "test-namespace" {
+								return []*un.Unstructured{existingClaimResource}, nil
+							}
+						}
+						return []*un.Unstructured{}, nil
+					}).
+					Build()
+			},
+			defClient: tu.NewMockDefinitionClient().
+				WithIsClaimResource(func(_ context.Context, resource *un.Unstructured) bool {
+					return resource.GetKind() == "TestClaim"
+				}).
+				Build(),
+			composite: tu.NewResource("example.org/v1", "TestClaim", "test-claim").
+				InNamespace("test-namespace").
+				Build(),
+			desired: tu.NewResource("example.org/v1", "ComposedResource", "claim-managed-resource").
+				WithLabels(map[string]string{
+					"crossplane.io/claim-name":      "test-claim",
+					"crossplane.io/claim-namespace": "test-namespace",
+				}).
+				WithAnnotations(map[string]string{
+					"crossplane.io/composition-resource-name": "resource-a",
+				}).
+				Build(),
+			wantIsNew:      false,
+			wantResourceID: "claim-managed-resource",
+			wantErr:        false,
+		},
 	}
 
 	for name, tt := range tests {
 		t.Run(name, func(t *testing.T) {
 			// Create the resource manager
 			resourceClient := tt.setupResourceClient()
-			rm := NewResourceManager(resourceClient, nil, tu.TestLogger(t, false))
+
+			rm := NewResourceManager(resourceClient, tt.defClient, tu.TestLogger(t, false))
 
 			// Call the method under test
 			current, isNew, err := rm.FetchCurrentObject(ctx, tt.composite, tt.desired)
@@ -312,15 +371,17 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 	parentXR.SetUID(ParentUID)
 
 	tests := map[string]struct {
-		parent   *un.Unstructured
-		child    *un.Unstructured
-		validate func(t *testing.T, child *un.Unstructured)
+		parent    *un.Unstructured
+		child     *un.Unstructured
+		defClient *tu.MockDefinitionClient
+		validate  func(t *testing.T, child *un.Unstructured)
 	}{
 		"NilParent_NoChange": {
 			parent: nil,
 			child: tu.NewResource("example.org/v1", "Child", "child-resource").
 				WithOwnerReference("some-api-version", "SomeKind", "some-name", "foobar").
 				Build(),
+			defClient: tu.NewMockDefinitionClient().Build(),
 			validate: func(t *testing.T, child *un.Unstructured) {
 				t.Helper()
 				// Owner refs should be unchanged
@@ -342,6 +403,7 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 			child: tu.NewResource("example.org/v1", "Child", "child-resource").
 				WithOwnerReference("XR", "parent-xr", "example.org/v1", "").
 				Build(),
+			defClient: tu.NewMockDefinitionClient().Build(),
 			validate: func(t *testing.T, child *un.Unstructured) {
 				t.Helper()
 				// Owner reference should be updated with parent's UID
@@ -359,6 +421,7 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 			child: tu.NewResource("example.org/v1", "Child", "child-resource").
 				WithOwnerReference("other-api-version", "OtherKind", "other-name", "").
 				Build(),
+			defClient: tu.NewMockDefinitionClient().Build(),
 			validate: func(t *testing.T, child *un.Unstructured) {
 				t.Helper()
 				// Owner reference should have a UID, but not parent's UID
@@ -403,6 +466,7 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 
 				return child
 			}(),
+			defClient: tu.NewMockDefinitionClient().Build(),
 			validate: func(t *testing.T, child *un.Unstructured) {
 				t.Helper()
 				ownerRefs := child.GetOwnerReferences()
@@ -430,12 +494,72 @@ func TestDefaultResourceManager_UpdateOwnerRefs(t *testing.T) {
 				}
 			},
 		},
+		"ClaimParent_SetsClaimLabels": {
+			parent: tu.NewResource("example.org/v1", "TestClaim", "test-claim").
+				InNamespace("test-namespace").
+				Build(),
+			child: tu.NewResource("example.org/v1", "Child", "child-resource").Build(),
+			defClient: tu.NewMockDefinitionClient().
+				WithIsClaimResource(func(_ context.Context, resource *un.Unstructured) bool {
+					return resource.GetKind() == "TestClaim"
+				}).
+				Build(),
+			validate: func(t *testing.T, child *un.Unstructured) {
+				t.Helper()
+				labels := child.GetLabels()
+				if labels == nil {
+					t.Fatal("Expected labels to be set")
+				}
+
+				// Check claim-specific labels
+				if claimName, exists := labels["crossplane.io/claim-name"]; !exists || claimName != "test-claim" {
+					t.Errorf("Expected crossplane.io/claim-name=test-claim, got %s", claimName)
+				}
+				if claimNS, exists := labels["crossplane.io/claim-namespace"]; !exists || claimNS != "test-namespace" {
+					t.Errorf("Expected crossplane.io/claim-namespace=test-namespace, got %s", claimNS)
+				}
+
+				// Should not have composite label for claims
+				if composite, exists := labels["crossplane.io/composite"]; exists {
+					t.Errorf("Should not have crossplane.io/composite label for claim, but got %s", composite)
+				}
+			},
+		},
+		"XRParent_SetsCompositeLabel": {
+			parent: tu.NewResource("example.org/v1", "XR", "test-xr").Build(),
+			child:  tu.NewResource("example.org/v1", "Child", "child-resource").Build(),
+			defClient: tu.NewMockDefinitionClient().
+				WithIsClaimResource(func(_ context.Context, resource *un.Unstructured) bool {
+					return resource.GetKind() == "TestClaim"
+				}).
+				Build(),
+			validate: func(t *testing.T, child *un.Unstructured) {
+				t.Helper()
+				labels := child.GetLabels()
+				if labels == nil {
+					t.Fatal("Expected labels to be set")
+				}
+
+				// Check composite label
+				if composite, exists := labels["crossplane.io/composite"]; !exists || composite != "test-xr" {
+					t.Errorf("Expected crossplane.io/composite=test-xr, got %s", composite)
+				}
+
+				// Should not have claim-specific labels for XRs
+				if claimName, exists := labels["crossplane.io/claim-name"]; exists {
+					t.Errorf("Should not have crossplane.io/claim-name label for XR, but got %s", claimName)
+				}
+				if claimNS, exists := labels["crossplane.io/claim-namespace"]; exists {
+					t.Errorf("Should not have crossplane.io/claim-namespace label for XR, but got %s", claimNS)
+				}
+			},
+		},
 	}
 
 	for name, tt := range tests {
 		t.Run(name, func(t *testing.T) {
 			// Create the resource manager
-			rm := NewResourceManager(tu.NewMockResourceClient().Build(), nil, tu.TestLogger(t, false))
+			rm := NewResourceManager(tu.NewMockResourceClient().Build(), tt.defClient, tu.TestLogger(t, false))
 
 			// Need to create a copy of the child to avoid modifying test data
 			child := tt.child.DeepCopy()
diff --git a/cmd/diff/diffprocessor/schema_validator.go b/cmd/diff/diffprocessor/schema_validator.go
index 1b35f27..7d79924 100644
--- a/cmd/diff/diffprocessor/schema_validator.go
+++ b/cmd/diff/diffprocessor/schema_validator.go
@@ -31,9 +31,6 @@ type SchemaValidator interface {
 	// ValidateScopeConstraints validates that a resource has the appropriate namespace for its scope
 	// and that namespaced resources match the expected namespace (no cross-namespace refs)
 	ValidateScopeConstraints(ctx context.Context, resource *un.Unstructured, expectedNamespace string, isClaimRoot bool) error
-
-	// IsClaimResource checks if the root resource is a claim type
-	IsClaimResource(ctx context.Context, resource *un.Unstructured) bool
 }
 
 // DefaultSchemaValidator implements SchemaValidator interface.
@@ -126,7 +123,7 @@ func (v *DefaultSchemaValidator) ValidateResources(ctx context.Context, xr *un.U
 
 	// Additionally validate resource scope constraints (namespace requirements and cross-namespace refs)
 	expectedNamespace := xr.GetNamespace()
-	isClaimRoot := v.IsClaimResource(ctx, xr)
+	isClaimRoot := v.defClient.IsClaimResource(ctx, xr)
 	v.logger.Debug("Performing resource scope validation", "resourceCount", len(resources), "expectedNamespace", expectedNamespace, "isClaimRoot", isClaimRoot)
 	for _, resource := range resources {
 		if err := v.ValidateScopeConstraints(ctx, resource, expectedNamespace, isClaimRoot); err != nil {
@@ -288,18 +285,3 @@ func (v *DefaultSchemaValidator) ValidateScopeConstraints(ctx context.Context, r
 
 	return nil
 }
-
-// IsClaimResource checks if the resource is a claim type by attempting to find an XRD that defines it as a claim.
-func (v *DefaultSchemaValidator) IsClaimResource(ctx context.Context, resource *un.Unstructured) bool {
-	gvk := resource.GroupVersionKind()
-
-	// Try to find an XRD that defines this resource type as a claim
-	_, err := v.defClient.GetXRDForClaim(ctx, gvk)
-	if err != nil {
-		v.logger.Debug("Resource is not a claim type", "gvk", gvk.String(), "error", err)
-		return false
-	}
-
-	v.logger.Debug("Resource is a claim type", "gvk", gvk.String())
-	return true
-}
diff --git a/cmd/diff/diffprocessor/schema_validator_test.go b/cmd/diff/diffprocessor/schema_validator_test.go
index e07d169..0b7b018 100644
--- a/cmd/diff/diffprocessor/schema_validator_test.go
+++ b/cmd/diff/diffprocessor/schema_validator_test.go
@@ -608,88 +608,3 @@ func TestDefaultSchemaValidator_ValidateScopeConstraints(t *testing.T) {
 		})
 	}
 }
-
-func TestDefaultSchemaValidator_IsClaimResource(t *testing.T) {
-	ctx := t.Context()
-
-	tests := map[string]struct {
-		setupClient func() *tu.MockDefinitionClient
-		resource    *un.Unstructured
-		expected    bool
-	}{
-		"ResourceIsClaim": {
-			setupClient: func() *tu.MockDefinitionClient {
-				// Create a mock XRD that defines this as a claim
-				claimXRD := tu.NewResource("apiextensions.crossplane.io/v1", "CompositeResourceDefinition", "testclaims.example.org").
-					WithSpecField("group", "example.org").
-					WithSpecField("names", map[string]interface{}{
-						"kind":     "TestClaim",
-						"plural":   "testclaims",
-						"singular": "testclaim",
-					}).
-					WithSpecField("claimNames", map[string]interface{}{
-						"kind":     "TestClaim",
-						"plural":   "testclaims",
-						"singular": "testclaim",
-					}).
-					Build()
-
-				return tu.NewMockDefinitionClient().
-					WithGetXRDForClaim(func(_ context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error) {
-						if gvk.Group == "example.org" && gvk.Kind == "TestClaim" {
-							return claimXRD, nil
-						}
-						return nil, errors.New("no XRD found that defines claim type")
-					}).
-					Build()
-			},
-			resource: tu.NewResource("example.org/v1", "TestClaim", "test-claim").
-				InNamespace("default").
-				Build(),
-			expected: true,
-		},
-		"ResourceIsNotClaim": {
-			setupClient: func() *tu.MockDefinitionClient {
-				return tu.NewMockDefinitionClient().
-					WithGetXRDForClaim(func(_ context.Context, _ schema.GroupVersionKind) (*un.Unstructured, error) {
-						return nil, errors.New("no XRD found that defines claim type")
-					}).
-					Build()
-			},
-			resource: tu.NewResource("example.org/v1", "TestXR", "test-xr").
-				InNamespace("default").
-				Build(),
-			expected: false,
-		},
-		"GetXRDForClaimError": {
-			setupClient: func() *tu.MockDefinitionClient {
-				return tu.NewMockDefinitionClient().
-					WithGetXRDForClaim(func(_ context.Context, _ schema.GroupVersionKind) (*un.Unstructured, error) {
-						return nil, errors.New("failed to fetch XRDs")
-					}).
-					Build()
-			},
-			resource: tu.NewResource("example.org/v1", "TestResource", "test-resource").
-				Build(),
-			expected: false, // Should return false on error
-		},
-	}
-
-	for name, tt := range tests {
-		t.Run(name, func(t *testing.T) {
-			defClient := tt.setupClient()
-			logger := tu.TestLogger(t, false)
-
-			// Create the schema validator
-			validator := NewSchemaValidator(tu.NewMockSchemaClient().Build(), defClient, logger)
-
-			// Call the function under test
-			result := validator.IsClaimResource(ctx, tt.resource)
-
-			// Check the result
-			if result != tt.expected {
-				t.Errorf("IsClaimResource() = %v, want %v", result, tt.expected)
-			}
-		})
-	}
-}
diff --git a/cmd/diff/testutils/mock_builder.go b/cmd/diff/testutils/mock_builder.go
index 6831b8e..9959c39 100644
--- a/cmd/diff/testutils/mock_builder.go
+++ b/cmd/diff/testutils/mock_builder.go
@@ -693,6 +693,12 @@ func (b *MockDefinitionClientBuilder) WithXRDForClaim(unstructured *un.Unstructu
 	})
 }
 
+// WithIsClaimResource sets the IsClaimResource behavior.
+func (b *MockDefinitionClientBuilder) WithIsClaimResource(fn func(context.Context, *un.Unstructured) bool) *MockDefinitionClientBuilder {
+	b.mock.IsClaimResourceFn = fn
+	return b
+}
+
 // Build returns the built mock.
 func (b *MockDefinitionClientBuilder) Build() *MockDefinitionClient {
 	return b.mock
diff --git a/cmd/diff/testutils/mocks.go b/cmd/diff/testutils/mocks.go
index 64fdfaa..ce6a93f 100644
--- a/cmd/diff/testutils/mocks.go
+++ b/cmd/diff/testutils/mocks.go
@@ -268,7 +268,6 @@ func (m *MockDiffProcessor) PerformDiff(ctx context.Context, stdout io.Writer, r
 type MockSchemaValidator struct {
 	ValidateResourcesFn        func(ctx context.Context, xr *un.Unstructured, composed []cpd.Unstructured) error
 	ValidateScopeConstraintsFn func(ctx context.Context, resource *un.Unstructured, expectedNamespace string, isClaimRoot bool) error
-	IsClaimResourceFn          func(ctx context.Context, resource *un.Unstructured) bool
 }
 
 // ValidateResources validates a set of resources against schemas from the cluster.
@@ -292,14 +291,6 @@ func (m *MockSchemaValidator) ValidateScopeConstraints(ctx context.Context, reso
 	return nil
 }
 
-// IsClaimResource checks if the root resource is a claim type.
-func (m *MockSchemaValidator) IsClaimResource(ctx context.Context, resource *un.Unstructured) bool {
-	if m.IsClaimResourceFn != nil {
-		return m.IsClaimResourceFn(ctx, resource)
-	}
-	return false
-}
-
 // endregion
 
 // region Kubernetes client mocks
@@ -580,10 +571,11 @@ func (m *MockEnvironmentClient) GetEnvironmentConfig(ctx context.Context, name s
 
 // MockDefinitionClient implements the crossplane.DefinitionClient interface.
 type MockDefinitionClient struct {
-	InitializeFn     func(ctx context.Context) error
-	GetXRDsFn        func(ctx context.Context) ([]*un.Unstructured, error)
-	GetXRDForClaimFn func(ctx context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error)
-	GetXRDForXRFn    func(ctx context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error)
+	InitializeFn      func(ctx context.Context) error
+	GetXRDsFn         func(ctx context.Context) ([]*un.Unstructured, error)
+	GetXRDForClaimFn  func(ctx context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error)
+	GetXRDForXRFn     func(ctx context.Context, gvk schema.GroupVersionKind) (*un.Unstructured, error)
+	IsClaimResourceFn func(ctx context.Context, resource *un.Unstructured) bool
 }
 
 // Initialize implements crossplane.DefinitionClient.
@@ -618,6 +610,14 @@ func (m *MockDefinitionClient) GetXRDForXR(ctx context.Context, gvk schema.Group
 	return nil, errors.New("GetXRDForXR not implemented")
 }
 
+// IsClaimResource implements crossplane.DefinitionClient.
+func (m *MockDefinitionClient) IsClaimResource(ctx context.Context, resource *un.Unstructured) bool {
+	if m.IsClaimResourceFn != nil {
+		return m.IsClaimResourceFn(ctx, resource)
+	}
+	return false
+}
+
 // MockResourceTreeClient implements the crossplane.ResourceTreeClient interface.
 type MockResourceTreeClient struct {
 	InitializeFn      func(ctx context.Context) error