On December 13th, 2024, the Government of Canada announced major reforms to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program. These long-awaited changes address the needs of Canadian innovators, promising significant benefits for businesses conducting research and development. This is big news for companies doing R&D, taking on technological risk and pushing the boundaries of what is possible. Here is a breakdown of the changes and what they mean for you:
Key Highlights of the SR&ED Reform
- Higher Spending Thresholds for SR&ED Claims: Canadian-Controlled Private Corporations (CCPCs) can now claim a fully refundable tax credit on up to $4.5 million of eligible expenses, an increase from the previous $3 million ceiling. As the tax credit is calculated at 35% of expenses for the enhanced rate, this means a potential increase from $1,050,000 to $1,575,000 in cash back.
- Increased Capital Limits: Grind-down thresholds have increased:
- The enhanced SR&ED rate now starts to phase out gradually for companies starting at $15 million in taxable capital (previously $10 million).
- The upper limit for getting the enhanced SR&ED rate now is $75 million in taxable capital (up from $50 million).
- Inclusion of Canadian Public Companies in Enhanced Rate: Canadian-Controlled Private Corporations (CCPCs) – and now, as part of this change, publicly traded Canadian companies – get 35% of SR&ED eligible expenses back as cash. All others get 15% of their SR&ED eligible expenses back as income tax offsets. Including Canadian public companies in the 35% cash-back category is a move that removes a long-standing restriction and opens doors for more innovation funding.
- Restoring Capital Expenditure Eligibility: After being eliminated a decade ago, capital expenditures are once again eligible under the SR&ED program. This change may allow businesses to include essential equipment and technology costs in their claims.
Who Does This Help the Most?
- Canadian Public Corporations: you may be eligible for a more than 2x increase of your SR&ED amount and get it back as cash!
- Prior to this change, only Canadian Controlled Private Corporations (CCPCs) were eligible for the enhanced SR&ED rate of 35% of eligible expenses back in cash. Everyone else had to make due with 15% of eligible expenses as an income tax offset. Now, Canadian Public Corporations can get access to the 35% cash rate – not just CCPCs.
- Engineering, Manufacturing and Biotechnology firms: if you have recently bought equipment or machinery for use in R&D, it may now be eligible for SR&ED.
- Prior to this change, anything that was considered to be a capital expenditure – such as expensive manufacturing or lab equipment – could not be included as a SR&ED expense – even if the piece of equipment was only used for SR&ED purposes. Now, this is no longer the case. Even if it is a capital expenditure, equipment and machinery may be potentially eligible. For example, this means that a $500,000 extruder you bought may get you an extra $175,000 in SR&ED.
- Companies spending more than $3 million on R&D: you might be able to get 50% more SR&ED cash back.
- Prior to this change, $3 million was the upper limit on what expenses could be considered for the 35% cash-back rate. This limit has now been increased by 50% to $4.5 million. This means that where before, you may have only gotten back $1 million (3,000,000 * 35%) in cash, you can now get back $1.5 million in cash.
- Companies with > $50 million in taxable capital: you may be eligible for a 2x or more increase of your SR&ED amount in cash!
- Prior to this change, if you had more than $50 million in taxable capital, you could only get 15% of the money you spent on eligible R&D back, and it would only offset income tax. Now, this has changed – the threshold has been moved up to $75 million. If you are at or under $75 million in taxable capital and did not claim SR&ED, there is a good chance you are leaving cash on the table.
- Companies with > $10 million in taxable capital: you may be eligible for more SR&ED cash back.
- Prior to the change, if your taxable capital was more than $10 million, the amount of cash you got back at a 35% rate got ground down until it was 0 once you reached $50 million in taxable capital. Now, your SR&ED cash back only starts to get ground down if you have $15 million in taxable capital. If this is you, you could see more money in your pocket going forward.
Why These Reforms Matter for Canadian Businesses Conducting R&D
- Boosting Innovation Capital: Higher thresholds and restored capital expenditures mean more funding for R&D projects. For all companies challenging the technological status quo, investing in developing new products and re-inventing their old ones, this creates significant financial relief.
- Supporting Growing Companies: By increasing capital limits, SR&ED reforms now benefit mid-sized tech companies, allowing them to scale innovation without outgrowing eligibility as quickly.
- Empowering Canadian Public Companies: Allowing Canadian publicly traded companies to claim SR&ED credits puts Canadian firms on a more level playing field, ensuring they can compete globally while remaining headquartered in Canada.
- Driving Long-Term Growth: These changes reflect a broader government focus on boosting productivity and innovation, which is critical as Canada seeks to close the gap in R&D investments compared to other nations.
What Businesses Should Do Next
If your business engages in research and development, now is the time to:
- Review your SR&ED claims strategy to take full advantage of the new thresholds.
- Double-check your capital expenditures, as they may be eligible costs in upcoming SR&ED applications.
- Reassess eligibility if you are a Canadian public company or growing tech firm—new opportunities await.
How Boast Can Help
Navigating SR&ED claims can be complex, especially with program changes. Boast combines advanced technology and expert teams to help you:
- Get the most SR&ED money with minimal effort.
- Identify all eligible expenditures, including capital costs.
- Ensure compliance and provide audit support for peace of mind.
With over $600 million in innovation funding secured for businesses, Boast is your trusted R&D Tax Credit partner for managing SR&ED claims in this new landscape.
Final Thoughts
The recent SR&ED reforms are a game-changer for Canada’s innovation ecosystem. By increasing access to tax credits and restoring critical funding elements, the government is taking a step forward in supporting homegrown innovators. For Canadian tech companies, these changes represent an opportunity to scale faster, innovate better, and compete globally.
Ready to get the most SR&ED money back under the new reforms? Talk to our experts at Boast and unlock more funding for your innovation journey.
FAQs
What are the key changes in the SR&ED program announced by the CRA?
The recent reforms to the SR&ED program include:
- An increase in the spending threshold for fully refundable tax credits from $3 million to $4.5 million for Canadian-Controlled Private Corporations (CCPCs).
- Higher capital eligibility limits, changing the grind down starting threshold from $10 million to $15 million in taxable capital, and changing the upper enhanced rate threshold from $50 million to $75 million in taxable capital.
- Inclusion of Canadian public companies for the enhanced, cash back SR&ED tax credits.
- Restoring capital expenditures as potentially eligible costs for SR&ED claims.
How do these SR&ED changes impact growing Canadian businesses?
The reforms provide significant benefits to small and mid-sized businesses by:
- Allowing greater access to refundable credits for eligible R&D projects.
- Offering financial relief through higher capital thresholds, especially for growing mid-market companies.
- Supporting public companies, which were previously excluded, to drive innovation and compete globally.
These changes ensure businesses can access more funding to fuel R&D and growth.
What types of capital expenditures are now eligible under the SR&ED program?
Capital expenditures include investments in:
- Equipment and tools used directly in eligible R&D activities.
- Technology infrastructure, such as hardware or software that supports experimentation and research.
- Specialized assets necessary to complete R&D projects.
This change allows businesses to include essential costs that were previously excluded since 2014. As there are many nuances to what is eligible, it is best to consult with an expert on this.
Who is eligible to claim SR&ED tax credits under the enhanced, cash-back rate under the new reforms?
Businesses eligible for SR&ED tax credits now include:
- Canadian-Controlled Private Corporations (CCPCs) with up to $75 million in taxable capital.
- Canadian public companies, newly included in the program.
- Other entities, such as partnerships, trusts, and individuals conducting eligible R&D activities within Canada.
The program now accommodates a broader range of businesses to drive innovation.
What are the next steps for businesses to take advantage of the SR&ED reforms?
To maximize the benefits of the SR&ED reforms:
- Review your R&D strategy to align with the increased thresholds and new eligibility rules.
- Identify capital expenditures that now qualify for inclusion in SR&ED claims.
- Consult with an SR&ED expert to reassess eligibility, streamline claims, and ensure compliance with CRA requirements.
- Prepare for the changes in the upcoming fiscal year to take full advantage of enhanced credits.
