In December 2024, the Government of Canada introduced sweeping reforms to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program, marking a significant shift in how Canadian businesses can access funding for innovation. These changes aim to better support companies that invest in research and development, especially those taking on technical risk and pushing the boundaries in science, engineering, and technology. For many businesses, this reform represents a timely opportunity to reassess their SR&ED strategy and potentially unlock more funding than ever before.

One of the most impactful changes is the increase in the expenditure limit for the fully refundable SR&ED tax credit. Canadian-Controlled Private Corporations (CCPCs) can now claim up to $4.5 million of eligible R&D expenses at the enhanced 35% refund rate—up from the previous $3 million ceiling. This represents a potential increase in refundable cash from $1.05 million to $1.575 million per year, significantly improving the financial return for companies with large R&D budgets.

Another critical change is the expansion of eligibility based on taxable capital. Previously, the enhanced 35% refund rate would begin to phase out once a business reached $10 million in taxable capital, disappearing entirely at $50 million. The new rules push these thresholds to $15 million and $75 million respectively. As a result, more mid-sized and growing companies will now qualify for higher refund rates for longer, even as they scale.

For the first time, Canadian public corporations have been included in the enhanced SR&ED rate category. Previously, only CCPCs were eligible to receive 35% of their R&D spending back as a refundable tax credit, while public companies and foreign-owned entities were limited to a 15% non-refundable offset. This long-standing restriction has now been lifted, allowing Canadian public companies to claim the same 35% refund rate as CCPCs. This change levels the playing field, enabling larger firms and public innovators to benefit from cash-back incentives that previously weren’t available to them.

Perhaps one of the most widely welcomed changes is the reintroduction of capital expenditures as eligible SR&ED costs. These expenses had been excluded from the program for over a decade, despite being essential to many R&D-intensive operations. Under the new rules, capital investments such as machinery, lab equipment, or custom manufacturing tools used in research may now be claimed. This is a significant development for sectors like manufacturing, biotechnology, and engineering, where high upfront equipment costs often support cutting-edge R&D work. For example, a $500,000 machine used exclusively for R&D could now return $175,000 through the SR&ED program, greatly enhancing return on investment.

The cumulative effect of these reforms is substantial, particularly for companies that were previously limited by their size, public status, or investment profile. Growing firms with taxable capital between $10 million and $75 million, public Canadian corporations, and businesses that make significant capital investments now have a better pathway to unlock non-dilutive funding through SR&ED. These changes also send a strong signal that the Canadian government is serious about fostering innovation, closing the R&D funding gap, and ensuring that businesses have the support needed to stay competitive on a global stage.

Companies that have not claimed SR&ED in the past due to these limitations should now revisit their eligibility. Those that have historically filed conservative claims may find that with these new rules, a more strategic approach could yield significantly higher returns. In the current economic climate, where capital efficiency is more important than ever, maximizing SR&ED refunds can provide crucial cash flow support while enabling further investment in innovation.

For Canadian businesses, the time to act is now. Reviewing your SR&ED strategy under the new guidelines could reveal opportunities you’ve previously overlooked. Whether you’re a public company newly eligible for cash refunds, a scaling firm that now qualifies for the enhanced rate, or a manufacturer investing in new equipment, there’s a strong chance you’re leaving money on the table.

Fundomation specializes in helping innovative companies navigate SR&ED with minimal effort and maximum return. By combining expert guidance with smart automation, we make it easier to capture all eligible costs—now including capital expenses—and ensure claims are fully compliant and audit-ready. If you want to take full advantage of these reforms and reclaim more funding for your R&D efforts, reach out to Fundomation today.