Pumping up the SR&ED program - Canada’s Budget 2025 looks good for innovators.
With Prime Minister Mark Carney’s first federal budget, we’re seeing the most significant enhancements to the SR&ED program since 2012. These changes are designed to accelerate Canadian innovation and strengthen the economy at a time when the country continues to grapple with brain drain and the impact of international tariffs.
Increase in Expenditure Limit from $3M to $6M for CCPCs
The expenditure limit is how much a Canadian-controlled private corporation can spend on SR&ED and qualify for a refundable tax credit at an enhanced rate of 35% of the expenditures. SR&ED expenditures up to the expenditure limit are refundable for CCPCs. A company can spend more than the expenditure limit, but once the limit is exceeded, the credits become non-refundable and are at a lower rate of 15%.
Now a CCPC can claim a refund of up to $2.1M; double the previous maximum refundable amount of $1.05M.
Extending the refundable credit to eligible public corporations
An eligible Canadian public corporation can now claim a refundable SR&ED tax credit at the enhanced 35% rate, whereas previously a public corporation could only claim a non-refundable SR&ED tax credit at a rate of 15%. This unlocks more cash for public corporations to further their R&D.
What is an eligible Canadian public corporation (ECPC)?
It is a public corporation is a Canadian resident corporation with shares listed on a stock exchange and is controlled by Canadian residents. Also a Canadian resident corporation that is owned by one or more ECPCs can also be considered an ECPC.
For example, a Canadian resident owns 51% of a public corporation. They can now claim a refundable SR&ED credit.
Restoring eligibility of SR&ED capital expenditures
In Canada, capital expenditures made after December 31, 2013, currently do not qualify for SR&ED. The SR&ED program focuses on current expenditures like salaries, contract and materials costs.
Now with the 2025 Federal Budget, the eligibility of SR&ED capital expenditures will be restored to how it was prior to 2014.
Current Rules
Under the current rules, businesses cannot claim SR&ED tax credits or deductions for the cost of acquiring capital property, which generally includes depreciable assets such as equipment, machinery, buildings, or land. The cost of using or leasing capital property also does not qualify.
Instead, businesses must claim the depreciation (Capital Cost Allowance - CCA) of the asset as a regular business expense over several years, outside of the specific SR&ED claim process.
Changes with the 2025 Budget
The budget will reverse the post-2013 restrictions to encourage more capital investment in R&D. Key aspects of the proposed new rules, mirroring the pre-2014 rules, include:
Eligibility for Deduction and SR&ED Investment Tax Credit (ITC): Qualifying capital expenditures would be eligible for both a full deduction against income in the year they are incurred and for the SR&ED ITC.
"All or Substantially All" (ASA) Criteria: To qualify, the capital property must be intended for use "all or substantially all" (generally 90% or more) of its operating time in the prosecution of SR&ED in Canada.
Depreciable Property: The expenditure must be for acquiring property that would otherwise be considered depreciable property, excluding buildings or land.
No Duplication: A claimant cannot claim both an SR&ED deduction for the capital expenditure and CCA on the same property.
Who will benefit?
Manufacturing companies and any other company investing in capital equipment to pursue R&D will now be able to claim significant deductions and ITCs to further their innovation. This offers good support to advanced Canadian manufacturers who are being impacted by the US tariffs.
Increasing prior year taxable capital expenditure limit grind down
Currently the SR&ED expenditure limit grinds down once a company's taxable capital employed in Canada exceeds $10M. The expenditure limit becomes zero when taxable capital exceeds $50M. This means that a CCPC will not qualify for a refundable SR&ED tax credit once taxable capital is over $50M.
Now with budget 2025, the taxable capital thresholds are increased to $15M to $75M. This means that a CCPC with less than $15M in taxable capital can qualify for a fully refundable SR&ED tax credit at the enhanced 35% rate.
This will put more cash in mid-sized businesses pockets.
Preparing for your next SR&ED claim
The 2025 budget marks a clear shift toward re-energizing Canadian R&D. Whether you’re a startup scaling your first product or a mid-sized manufacturer investing in new equipment for R&D, these SR&ED changes significantly increase the cash available to fuel your growth. The expansion of refundable credits and capital eligibility means greater opportunities for reinvestment, but it also introduces new complexity in how claims should be structured.
If you are planning your 2025 SR&ED claim or budgeting for 2026, now is the time to review your project documentation, expenditure planning and corporate structure to maximize your benefit under the new rules. Let’s talk about how I can help you model the financial impact of these changes and ensure you are well prepared to capture everything you are entitled to.
