What Canadian Businesses Need to Know
The federal government has released draft legislation that could mark the most significant update to the Scientific Research & Experimental Development (SR&ED) program in over a decade.
The proposed changes were first introduced in the 2024 Fall Economic Statement and, on August 15, 2025, the government announced draft legislation to move them forward. While the changes are not law yet, they represent important shifts that could affect how Canadian businesses of all sizes plan projects, manage cash flow, and maximize credits in the years ahead.
Key Proposed Changes:
The draft legislation introduces several updates designed to modernize and expand access to SR&ED:
1. Enhanced Credit Cap
The expenditure limit for qualifying CCPCs would increase from $3M to $4.5M, allowing a maximum enhanced 35% refundable credit of $1.575M per year (up from $1.05M)
Example: A CCPC with $4M in eligible expenditures would claim:
- Before: $3M at 35% enhanced rate = $1.05M refundable credit + $1M at 15% basic rate = $150K
- After: $3M at 35% enhanced rate = $1.4M refundable credit
This change allows companies to recover more of their R&D investments under the enhanced rate.
2. Higher Phase-Out Thresholds:
Taxable capital thresholds that determine eligibility for the enhanced rate would increase from $10M/$50M to $15M/$75M, allowing more growing companies to qualify for the enhanced 35% rate.
Example: Company with $12M taxable capital with $3M in eligible expenditures would claim:
- Before: $1M X 35% = $350K refundable credit + $2M at 15% = $300K non-refundable credit; Total Credit $650K
- After: $3M at 35% = $1.05M refundable credit
This expansion ensures high-growth companies don’t lose access to the enhanced rate as they scale.
3. Public Corporation Eligibility
Public corporations will be eligible for the enhanced refundable tax credit provided the corporation:
- Is resident in Canada;
- Has a class of shares listed on a designated stock exchange
- Is not controlled directly or indirectly in any manner whatever by one or more non-resident persons
This opens the enhanced rate to a broader range of innovative companies.
Example: Canadian public corporation with $3M in eligible expenditures would claim:
- Before: $3M at 15% = $450K non-refundable tax credit
- After: $3M at 35% = $1.05M refundable credit
4. Capital Expenditures Restored
Capital expenditures, such as equipment used in R&D, would once again be eligible for both SR&ED deductions and investment tax credits. The rules used would generally be the same as those that existed prior to 2014.
Example: CCPC with taxable capital below $15M invests $500K in equipment considered an eligible capital expenditure would claim:
- Before: Ineligible; $0 tax credits
- After: $500K at 35% = $175K (40% refundable, 60% non-refundable)
*Note: for qualifying CCPCs, credits earned on capital expenditures are only partially refundable (up to 40%), unlike credits on current expenditures, which are fully refundable up to a CCPC’e expenditure limit.
Why It Matters
For many organizations, SR&ED is more than a tax incentive; it’s a critical funding mechanism that offsets the risks of R&D. These proposed updates could:
- Enable your business to recover more costs per project
- Support larger or more capital-intensive investments
- Extend benefits to a broader range of companies, including public corporations
- Provide greater certainty in financial planning and budgeting
But with opportunity comes complexity. Companies need to carefully review how these changes could alter their current SR&ED strategy and claims process.
What to Do Now
Although the legislation is still in draft form, organizations should:
- Stay Informed: monitor developments closely, as timelines for adoption may move quickly
- Assess your Pipeline: consider how upcoming or planned projects might be affected if capital expenditures and higher credit thresholds are reinstated
- Engage finance and R&D teams early: begin evaluating the potential impact now so you can act quickly if the legislation passes.
- Plan to consider retroactive costs: draft legislation indicates these changes may apply retroactively to projects already underway, so reviewing past and current SR&ED claims is essential.
Final thoughts
The draft SR&ED changes signal a positive shift for Canadian innovation across industries, but preparation is key. Businesses that understand the details and adapt their strategy early will be best positioned to unlock the full value of the program if these updates become law.
For clarity on how these draft changes could impact your business, reach out to us or your account manager at NorthBridge. We can help you assess potential risks and opportunities, and guide you on next steps to ensure your SR&ED strategy is ready for the changes.
