Proposed SR&ED changes could boost Canadian research and development

Proposed changes to Canada’s scientific research and experimental development (SR&ED) tax incentive program could make it more attractive for businesses to engage in research and development (R&D) activities in Canada. 

The federal government has provided new details on proposed reforms to expand its tax credit program in draft legislation released on August 15, 2025—originally announced in the 2024 Fall Economic Statement. These proposed changes could create a substantial opportunity for Canadian-controlled businesses to secure additional financial support to develop technological or scientific advancements and ultimately boost innovation in Canada. The draft details, which generally apply to tax years that begin on or after December 16, 2024, include proposed measures to:  

• Raise the expenditure limit for Canadian-controlled private corporations (CCPCs) and their associated groups to qualify for 35% refundable tax credits to $4.5 million (from $3 million). 
• Delay the phase-out of 35% refundable tax credits for CCPCs and their associated groups by increasing the threshold range to between $15 million and $75 million of taxable capital employed in Canada from the preceding year (from between $10 million and $50 million). 
• Allow “eligible Canadian public corporations” and their consolidated groups to also qualify for the 35% refundable tax credits (previously only available to CCPCs) up to $4.5 million expenditure limit. 
• Introduce the phase-out of 35% refundable tax credits for eligible Canadian public corporations and their consolidated groups with an average gross revenue between $15 million and $75 million over the preceding three fiscal years. 
• Allow CCPCs and their associated groups to elect to have their expenditure limit phased-out by their gross revenues instead of their taxable capital (similar to eligible Canadian public corporations). 
• Reintroduce tax credits for SR&ED capital expenditures on property acquired on or after December 16, 2024, and SR&ED lease costs first payable on or after December 16, 2024 (previously eliminated under the existing rules in 2014). 

It’s important to note that these proposed changes were released for consultation and aren’t yet enacted into law. However, considering support for capital expenditures and lease costs may become available immediately once enacted, it could be beneficial to have a look at your capital acquisitions from December 16, 2024 and onwards.

Are you an eligible Canadian public corporation?

A public corporation that is resident in Canada and not controlled, directly or indirectly, by non-resident persons of Canada will generally be considered an eligible Canadian public corporation. While CCPCs have claimed 35% refundable SR&ED tax credits for decades, public corporations only receive 15% non-refundable tax credits for their R&D activities, under the existing rules. The draft legislation seeks to extend access to 35% refundable tax credits to eligible Canadian public corporations for the first time.

Examples of how proposed changes could impact support

Example 1

You’re a CCPC with $45 million of preceding year taxable capital in Canada, $40 million of average gross revenue over the preceding three fiscal years, $3.5 million of qualified R&D expenditures (not including capital expenditures), and preceding year taxable income of $500,000.

Under the existing rules, your expenditure limit is $375,000. As a result, your total federal tax credits would be $600,000 ($131,250 of refundable tax credits and $468,750 of non-refundable tax credits).

Under the proposed changes, your expenditure limit would be $2.625 million. This would increase your total federal tax credits to $1.05 million ($918,750 of refundable tax credits and $131,250 of non-refundable tax credits). In both cases, additional provincial tax credits may apply. 

Example 2

You’re an eligible Canadian public corporation with $40 million of average gross revenue over the preceding three fiscal years and $3.5 million of qualified R&D expenditures (not including capital expenditures). 

Under the existing rules, you don’t qualify for 35% refundable tax credits so your expenditure limit is nil. As a result, your total federal tax credits would be $525,000 (all of which are non-refundable).  

Under the proposed changes, your expenditure limit would be $2.625 million. This would increase your total federal tax credits to $1.05 million ($918,750 of refundable tax credits and $131,250 of non-refundable tax credits). In both cases, additional provincial tax credits may apply. 

The return of capital expenditures and lease costs

Under the proposed changes, corporations will be able to claim eligible capital expenditures again for certain property acquired. The value of the tax credit and the proportion that will be refundable will depend on several factors, including whether you’re a CCPC or an eligible Canadian public corporation and your expenditure limit. Generally, only 40% of tax credits earned at 35% against capital expenditures will be refundable with the remaining 60% being non-refundable.

Capital expenditures may be eligible if depreciable property is acquired on or after December 16, 2024, or lease costs are first payable on or after that date. In addition, at the time of acquisition, 90% or more of the property’s value must be intended to be consumed in R&D activities or 90% or more of the property’s operating time must be intended to be used for R&D activities. If the property is used more than half the time but less than 90% for R&D, you may still be able to qualify for tax credits as first or second term shared use equipment under certain conditions but at a reduced rate. 

For help navigating these proposed changes, contact your local advisor or reach out to us here.

Disclaimer

_{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}