Bottom line up front: Canada just announced the biggest enhancements to its SR&ED program in years, with higher credit limits, expanded eligibility, and the return of capital expenditure eligibility. Draft legislation was released on August 15, 2025, with these changes taking effect for tax years beginning after December 16, 2024. For manufacturers and scaling-tech companies in particular, this new is potentially game-changing..
If you're running an innovative business in Canada, December 16th might just be your new favorite date. The federal government's 2024 Fall Economic Statement delivered some serious upgrades to the Scientific Research and Experimental Development (SR&ED) program that could put significantly more cash back in your pocket.
Latest Update: Draft Legislation Now Available
On August 15, 2025, the Minister of Finance released draft legislative proposals for consultation that would implement these SR&ED enhancements along with other previously announced tax measures. The government is seeking feedback from businesses and stakeholders through September 12, 2025, before finalizing the legislation.
This means the changes are moving from announcement to implementation, which is a clear signal that these enhancements are on track to become law.
The Big Four Changes That Matter
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Higher Credit Limits = More Cash Back
The annual expenditure limit for the enhanced 35% refundable tax credit has jumped from $3 million to $4.5 million. For Canadian-controlled private corporations (CCPCs), this means you can now claim up to $1.575 million annually in refundable credits (up from $1.05 million).
What this means for you: If you're maxing out your SR&ED claims, you just got a potential $525,000 annual boost to your cash flow.
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Public Companies Finally Get Refundable Credits
Here's where things get really interesting: Canadian public corporations can now access the same enhanced 35% refundable tax credit on up to $4.5 million of qualifying expenditures. In the past, this was only available to CCPCs.
To qualify, public corporations must be Canadian resident, have shares listed on a designated stock exchange (or elect to be a public corporation), and not be controlled by non-residents.
What this means for you: If you're a public company that's been stuck with non-refundable credits, you can now get actual cash back from your R&D investments.
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Phase-Out Thresholds Get More Generous
The taxable capital phase-out thresholds have increased from $10-50 million to $15-75 million. Plus, CCPCs now have the option to use a gross revenue-based calculation instead of taxable capital, using the same structure as public corporations.
What this means for you: More mid-sized companies can now access the full enhanced credit, and you have more flexibility in how eligibility is calculated.
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Capital Expenditures Are Back
Capital expenditures are once again eligible for both SR&ED deductions and investment tax credits, applying to property acquired on or after December 16, 2024. The rules will be generally the same as those that were in effect before 2014.
What this means for you: Equipment, machinery, and other capital investments for your R&D activities can now qualify for tax benefits again.
Why Manufacturers Should Be Especially Excited
Manufacturing companies represent one of the largest segments of SR&ED claimants, and these changes are particularly beneficial for the sector. Here's why:
Equipment-Heavy R&D: Manufacturing R&D often involves significant capital investments in specialized equipment, prototyping machinery, and testing apparatus. With capital expenditures back in the program, manufacturers can now claim these substantial investments.
Scaling Challenges: Many manufacturing companies hit the previous thresholds as they scaled, losing access to enhanced credits just when they needed them most. The higher phase-out thresholds mean you can maintain eligibility longer as you grow.
Process Innovation: Manufacturing R&D often focuses on process improvements and automation – areas where the enhanced credits can provide crucial support for development costs.
What You Need to Do Right Now
Stay Informed During the Consultation Period
With draft legislation now available and the consultation period open until September 12, 2025, this is an opportunity to review the proposed changes and provide feedback if you have specific concerns or suggestions. You can submit comments to consultation-legislation@fin.gc.ca.
For Tax Years Starting After December 16, 2024
- Review your R&D roadmap: With higher credit limits, you might want to accelerate or expand planned R&D activities.
- Reassess your equipment needs: Capital expenditures are back on the table. Equipment purchases you've been putting off might now qualify for significant tax benefits.
- Check your eligibility: If you're a public company or approaching the old thresholds, you might now qualify for enhanced credits.
- Plan your timing: These measures are effective for taxation years beginning on or after December 16, 2024, so timing matters for when you start new R&D projects.
Documentation Is Still King
Remember, getting the credits still depends on having solid documentation that proves your activities qualify as SR&ED. The government isn't changing the fundamental requirements – just making the program more generous for those who meet them.
The Bigger Picture
The August 15, 2025 release of draft legislation confirms that Canada is moving forward with these SR&ED enhancements as part of a broader package of tax measures. SR&ED is one of the federal government's largest tax expenditures, totaling $3.9 billion in foregone revenue in 2022-23. The government expects these enhancements to cost an additional $1.8 billion over the next five years, signaling a serious commitment to supporting Canadian innovation.
This isn't just a tweak, but a significant investment in keeping Canadian companies competitive and encouraging them to do their R&D at home rather than moving it elsewhere.
What's Coming Next
The government has hinted that these changes are just the beginning, with more SR&ED reforms expected to be announced in Budget 2025. They're also considering implementing a patent box regime to provide additional tax incentives for intellectual property development.
Getting the Most Out of These Changes
The enhanced SR&ED program is more generous than ever, but you still need to navigate it properly to maximize your benefits. Whether you're a manufacturer investing in new production technologies, a tech company developing AI solutions, or any other business pushing the boundaries of innovation, these changes represent a real opportunity to improve your cash flow and accelerate your R&D efforts.
The key is understanding how these changes apply to your specific situation and ensuring your R&D activities and documentation align with SR&ED requirements. With the right approach, these enhancements could provide the financial boost your innovation projects need to reach the next level.
Ready to explore how these SR&ED changes could impact your business? The enhanced program offers more opportunities than ever, but navigating the requirements still requires expertise. Consider consulting with SR&ED specialists to ensure you're maximizing these new benefits while staying compliant with all the program requirements.
