For over a decade, capital expenditures were excluded from the SR&ED program, limiting claims largely to labour, materials and Canadian subcontract costs. With the enactment of Bill C-15, the Budget 2025 Implementation Act, No. 1, that position has now reversed. Capital costs have officially been reintroduced, allowing companies to once again claim certain equipment and machinery used in R&D.
At a high level, this appears to be a straightforward expansion of the program. However, the key point is more specific: not all capital expenditures are eligible, only those acquired primarily for SR&ED activities.
What Changed?
A significant update is the reinstatement of capital expenditures as eligible SR&ED costs. This means qualifying assets can now contribute the calculation of SR&ED investment tax credits (ITCs). The rules apply to property acquired on or after December 16, 2024, and largely reflect a return to the pre-2014 framework.
Eligibility Still Comes Down to Primary Use
One of the most common misconceptions is that capital expenditures can now simply be added into SR&ED claims if they support R&D in some capacity. In reality, eligibility continues to depend on how and why an asset is used.
The central test remains whether the asset is used “all or substantially all” for SR&ED activities. Practically, this means the equipment must be acquired primarily for experimental development or scientific research.
This distinction is critical in practice:
- A custom-built prototype testing rig used exclusively for experimental work may support eligibility
- A 3D printer purchased specifically for iterative R&D prototyping may also qualify where usage is fully dedicated to SR&ED
- A CNC machine used primarily for production with occasional R&D runs would likely not meet the threshold
- Shared lab equipment used across QA, production, and development functions would require careful allocation and may not qualify
Where the Opportunity Lies
For the right organizations, this change is meaningful. Companies that invest directly in equipment for experimentation, prototyping, or development may now be able to bring those costs into scope.
However, the benefit is strongest where SR&ED intent is established at the point of acquisition. The more an asset serves broader operational purposes, the more limited the eligibility becomes.
Where We See Risk Emerging
As with most SR&ED changes, there is often a gap between what is technically allowed and what is successfully claimed.
Common risk drivers include:
- Assuming all equipment used in R&D qualifies
- Assuming partial or incidental SR&ED use is sufficient
- Assuming production or operational equipment can be included without primary-use alignment
In practice, the central issue is whether the “primary use” test can be clearly demonstrated and supported. Where challenges arise is typically not in whether R&D occurred, but in whether the capital asset can be credibly tied to that activity as its primary function.
Timing and Planning Considerations
Timing is also important. Eligibility is tied to when assets are acquired or when costs become payable, making this a planning issue rather than a reporting one.
Decisions around why an asset is being purchased and how it will be used from the outset directly impact eligibility. Equipment acquired specifically for SR&ED purposes will be treated differently from assets purchased for broader operational needs.
Early alignment between capital planning and SR&ED strategy is key to defensible outcomes.
The Bottom Line
The reinstatement of capital expenditures is a positive development, but it is not a blanket expansion. Only assets acquired primarily for SR&ED activities will qualify.
Organizations that align capital investment decisions with SR&ED intent and can clearly support primary use will be best positioned to benefit. Those that assume broader eligibility may encounter challenges.
Need a Second Look?
If you are planning to incorporate capital expenditures into your next SR&ED claim, it is worth reviewing how those assets are being acquired and used. Ensuring primary use can be clearly demonstrated will help reduce risk and improve claim defensibility.
Contact us to find out if your capital expenses could qualify on your past or future SR&ED claims.
