New SR&ED Incentives: How Your Business Can Benefit
The 2024 Fall Economic Statement introduced several proposed enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive program. These changes aim to encourage Canadian businesses to invest in innovation and drive economic growth. The government’s proposals focus on four key areas:
1. Increased SR&ED expenditure limit
Currently, a Canadian-controlled private corporation (CCPC) can earn a 35% federal SR&ED investment tax credit (ITC) on qualifying expenditures, up to the CCPC’s expenditure limit of $3 million. The government proposes increasing this limit to $4.5 million, allowing a qualifying CCPC to claim up to $1.575 million per year (pro-rated for short taxation years) in fully refundable ITCs.
Businesses with substantial SR&ED-eligible expenditures—such as salaries, contract payments, and materials—will now have greater access to these enhanced incentives, making innovation-driven projects more financially feasible.
2. Increased taxable capital phaseout thresholds
The taxable capital phaseout thresholds are also set to increase from the current range of $10 million – $50 million to $15 million – $75 million. This means that a corporation’s SR&ED expenditure limit will begin to be reduced once its overall taxable capital reaches $15 million and will be entirely phased out at $75 million.
For businesses associated with other corporations, this expanded threshold offers more flexibility before eligibility begins to decrease, helping mid-sized firms retain SR&ED benefits longer.
3. Enhanced refundable ITC for eligible public corporations
Currently, Canadian public corporations qualify for only a 15% non-refundable ITC. The proposed change would increase this rate to a refundable 35% ITC for eligible public corporations, with an annual SR&ED expenditure limit of $4.5 million.
Publicly traded companies engaging in SR&ED activities will now have a stronger financial incentive to invest in research and innovation, as the refundable credit provides direct cash benefits instead of merely reducing tax liability.
4. Reinstatement of capital expenditures eligibility
Before 2014, certain capital expenditures were eligible for SR&ED purposes, but this eligibility was later removed. The government proposes reinstating capital expenditures as eligible SR&ED expenditures, with the rules aligning closely with those in place before 2014.
This change expands the scope of eligible claims, particularly benefiting businesses that invest heavily in infrastructure and equipment to support R&D initiatives.
What’s next?
These proposed changes would apply to taxation years beginning on or after December 16, 2024. However, following the release of the 2024 Fall Economic Statement, Prime Minister Justin Trudeau stepped down, and Parliament has been prorogued until March 24, 2025. As a result, it is uncertain whether these proposed amendments will be passed into law. We will continue to monitor legislative developments and update this post as more information becomes available.
If you have questions about how these proposed SR&ED changes could impact your business, reach out to your DMCL advisor. Our team can help you navigate the potential tax implications and ensure you maximize available incentives.