How artificial intelligence is transforming R&D productivity while unlocking unprecedented opportunities for tax credits and non-dilutive funding.

Innovation has been the driving force behind human progress for centuries, from the steam engine that powered the Industrial Revolution to the vaccines that have saved millions of lives. But truly innovative R&D is getting harder and more expensive, with some sectors seeing investments yield less innovation over time, creating what researchers call an "innovation slowdown."

However, as with seemingly everything artificial intelligence (AI) touches, there's a groundshift underway affecting R&D teams across North America.

Recent research from McKinsey reveals that AI has the power to substantially accelerate R&D across industries that account for 80 percent of large corporate R&D spending.

We're not talking about modest improvements: This is a transformation that could reshape entire sectors and unlock billions in value.

The Numbers That Will Make You Rethink Your R&D Strategy

The McKinsey findings are nothing short of remarkable. In computer gaming, where intellectual property is paramount, AI could boost output by 150 percent. In industries closely aligned with scientific discovery, such as chemicals and pharmaceuticals, AI could enhance R&D throughput by up to 75 and more than 100 percent, respectively.

Think about that for a moment: If you're in pharmaceuticals, AI could potentially double your R&D output. In electronics, which demands multidisciplinary engineering, AI could nearly double the pace of product design, while commercial aerospace could see a 25 percent increase.

These aren't pie-in-the-sky projections. They're based on real applications already being deployed across three key AI channels:

  • Design Generation: AI creating new product concepts, molecular structures, and engineering solutions
  • Research Operations: AI streamlining workflows, data analysis, and experimental processes
  • Design Evaluation: AI accelerating testing, validation, and optimization cycles

From Nobel Prizes to Practical Applications

The research isn't just theoretical; it's already producing Nobel Prize-winning results. David Baker, a researcher at the University of Washington, has led a team that uses deep learning models to design novel proteins that bind and catalyze other reactions. For leading this pioneering work, Baker shared the 2024 Nobel Prize in Chemistry.

Meanwhile, British AI researchers Demis Hassabis and John Jumper won the other half of the 2024 Nobel Prize in Chemistry for training a model that can predict the 3D structure of proteins, which has now been used to predict the structure of around 200 million proteins, covering almost every known protein.

These breakthroughs are part of a broader transformation where AI is revolutionizing how we approach scientific discovery and product development.

The Perfect Storm: AI Innovation Meets Enhanced Tax Incentives

Here's where the story gets even more compelling for forward-thinking businesses. Just as AI is supercharging R&D capabilities, governments on both sides of the border are recognizing the critical importance of supporting innovation through enhanced tax incentives.

Canada's Game-Changing SR&ED Enhancements

In December 2024, the Canadian government announced significant reforms to the Scientific Research and Experimental Development (SR&ED) program that will make R&D investments even more attractive. Among other enhancements, the government has pitched increasing the expenditure limit on which the enhanced 35 per cent rate can be earned from $3 million to $4.5 million. As a result, qualifying CCPCs would be able to claim up to $1.575 million per year of the enhanced, fully refundable tax credit.

Even more exciting, the government has proposed extending eligibility for the enhanced 35 percent refundable tax credit to eligible Canadian public corporations on up to $4.5 million of qualifying SR&ED expenditures. This represents a massive expansion of opportunity for larger companies that were previously limited to non-refundable credits.

Perhaps most significantly, the government has suggested restoring the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program, which could dramatically increase the value of claims for companies investing in AI infrastructure and equipment.

United States: The Push for Immediate R&D Expensing

Meanwhile, south of the border, there's growing bipartisan momentum to restore immediate R&D expensing. The Senate's new proposal would restore immediate expensing permanently for R&D activities performed in the United States. This would apply to costs incurred in tax years beginning after December 31, 2024.

According to the National Association of Manufacturers (NAM), a return to immediate expensing would drive job creation: 75 percent of companies' R&D spending goes to workers' salaries. A recent report published by NAM shows that for every $1 billion spent on R&D, 17,000 American jobs are supported.

Three Strategic Actions for Maximizing Your AI-Powered R&D Advantage

  1. Audit Your Current R&D Activities Through an AI Lens

Start by mapping your existing R&D processes against the three AI impact channels identified in the McKinsey research. Where are you currently spending time on tasks that could be accelerated through design generation, research operations optimization, or design evaluation enhancement?

Many companies are surprised to discover that activities they never considered "R&D" actually qualify for tax credits. This is especially true when enhanced by AI tools, which often create new qualifying activities around data analysis, algorithm development, and process optimization.

  1. Develop an Integrated AI-R&D Investment Strategy

The convergence of AI capabilities and enhanced tax incentives creates a unique opportunity for strategic investment. Consider how you can:

  • Scale proven AI applications: Focus on areas where your industry shows the highest potential throughput gains according to the McKinsey research
  • Document systematically: Ensure all AI-enhanced R&D activities are properly tracked and documented for tax credit purposes
  • Think cross-border: With improvements in both Canadian SR&ED and potential U.S. expensing changes, consider how to optimize your R&D footprint across jurisdictions

  1. Partner with Technology-Enabled R&D Tax Credit Specialists

The intersection of AI-powered R&D and evolving tax regulations is complex. The most successful companies don't try to navigate this alone. They partner with specialists who understand both the technical nuances of qualifying activities and the regulatory landscape.

This is where working with a tech-enabled provider like Boast becomes invaluable. Our AI-powered platform can identify qualifying R&D activities you might miss, ensure proper documentation, and optimize claims across multiple jurisdictions; all while you focus on innovation.

The Competitive Advantage Window Is Closing

The reality is that companies that act first will gain a compounding advantage when it comes to AI and R&D. McKinsey research sizes the long-term AI opportunity at $4.4 trillion in added productivity growth potential from corporate use cases, but while nearly all companies are investing in AI, only 1 percent of leaders call their companies "mature" on the deployment spectrum.

Those early movers aren't just getting better R&D results: They're also maximizing their access to non-dilutive funding through enhanced tax credit programs.

Your Next Steps: From Insight to Action

The convergence of AI-powered R&D capabilities and enhanced tax incentives represents both an operational improvement and a major, strategic inflection point. Companies that move decisively to integrate AI into their R&D processes while maximizing access to available tax credits will build sustainable competitive advantages.

The question isn't whether AI will transform R&D in your industry (after all, according to McKinsey's research, it likely already is). The question is whether you'll be leading that transformation or struggling to catch up.

Ready to explore how AI can recharge your R&D efforts while maximizing your tax credit opportunities? Let's start the conversation about turning your innovation investments into both breakthrough products and significant cash flow improvements.

Because in the race for innovation supremacy, the companies that move first will help redefine what's possible.