Canada’s SR&ED program enters a new era: Key impacts for businesses

Canada’s Scientific Research & Experimental Development (SR&ED) program is undergoing its most significant transformation in more than a decade. These reforms, including expanded eligibility, restored capital expenditure incentives, and administrative modernization, are designed to strengthen Canada’s innovation ecosystem and broaden access to refundable tax credits for R&D‑driven organizations.

For SR&ED practitioners, CFOs, founders, and innovation leaders, understanding these changes is essential to capturing new opportunities and preparing for a more dynamic claims landscape.

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1. A major increase to the enhanced expenditure limit

Effective for taxation years beginning on or after December 16, 2024, the annual expenditure limit for the enhanced 35% refundable SR&ED investment tax credit (ITC) has increased significantly from the historical $3 million limit to the now‑finalized $6 million enhanced limit. This change was introduced in the 2025 federal budget.

This means qualifying corporations may earn up to $2.1 million in refundable credits annually, doubling available cash flow for R&D intensive Canadian businesses.

This is one of the largest expansions of the refundable SR&ED benefit since the program’s inception. This change allows early-stage companies like tech start-ups to more aggressively invest in their innovation and development now that these expenditures are eligible for a higher return.

2. Broader access to the enhanced rate for more companies, including certain public corporations

Another historic shift: for the first time, certain eligible Canadian public corporations (ECPC) may now access the enhanced 35% refundable credit. Previously, only Canadian Controlled Private Corporations (CCPCs) qualified for this credit.

This expansion significantly widens the scope of organizations that can benefit from the credit, especially high growth small capitalized innovators in:

Clean technology
Life sciences
Advanced manufacturing
Software and AI

ECPCs may now claim the enhanced rate on up to $6 million of qualifying R&D spending, provided they meet new criteria based on average gross revenues.

3. Updated phase‑out thresholds to support scaling businesses

Historically, many growing companies “phased out” of the enhanced credit far too early by making capital investments or bringing on investors. The new changes allow more companies to access higher credits for longer as they grow:

Old phase‑out thresholds

$10 million – $50 million taxable capital

New phase‑out thresholds

$15 million – $75 million taxable capital

This adjustment allows scaling companies to retain access to the enhanced refundable rate much longer, supporting them until they’ve become more sustainable.

In addition, CCPCs can now elect to have their phaseout determined using gross revenue averaging or taxable capital, offering more flexibility for early stage firms with limited revenue but growing capital bases. Certain ECPCs must use the revenue option.

4. Capital expenditures return to the SR&ED program

In one of the most anticipated changes, capital expenditures have been reinstated as eligible for both deductions and ITCs, reversing a policy shift from 2012.

Eligible expenditures may include:

R&D lab and testing equipment
Prototyping machinery
Specialized tools and devices
Infrastructure primarily used for experimentation
Fees for software and cloud space used for development

This change applies to property acquired on or after December 16, 2024 and relevant leases first payable after that date.

For hardware‑heavy industries such as clean tech, robotics, and manufacturing, this change can materially increase SR&ED benefit potential. Certain limitations will apply depending on how the equipment is used, contact us to help you navigate these details.

5. Modernizing and streamlining SR&ED administration

The CRA is moving toward a more predictable, automated, and user‑friendly SR&ED review process. Key enhancements include:

AI‑supported claim screening to reduce unnecessary audits and accelerate low‑risk claims
A streamlined review process with reduced documentation burdens
A voluntary pre‑claim approval program, offering greater certainty
Clearer and more consistent policy language, reflected in updated CRA policies on wages, filing requirements, and penalties. This change was introduced in 2025.

What do these changes mean for Canadian businesses?

Collectively, these reforms broaden access, improve benefit levels, and reduce administrative friction. For Canadian innovators, this translates into:

More refundable support

Significantly higher refundable limits mean better cash flow for scaling R&D efforts.
Increased eligibility

Certain ECPCs and more mid-sized firms can participate more fully.
Improved treatment of capital

Reinstated capital eligibility supports investment in equipment-heavy development cycles.
Greater predictability and speed

Streamlined CRA processes reduce uncertainty and help companies better plan their R&D strategies.
More strategic claim planning

Phaseout elections and updated thresholds create opportunities for optimized tax positioning.

For organizations committed to developing new technologies, processes, and products, the SR&ED enhancements offer powerful new tools to accelerate growth and maintain Canada’s competitiveness in the global innovation economy.

Early-stage companies that rely on refundable SR&ED credits to fund innovation no longer need to worry that raising seed stage capital will reduce their eligibility for these credits. This will help ease the “funding gap” that results in cash flow strain until they reach self-sustainability.

As the program continues to evolve, businesses should revisit their SR&ED strategies, review their capital investment plans, and reassess their eligibility under the expanded rules. With thoughtful planning, companies can capture substantial new value from these historic reforms.

Professionals across our KPMG tax incentives practice are prepared to help you navigate these changes and build a strategic SR&ED approach.