Reforming and Enhancing the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
Backgrounder
December 13, 2024
The Scientific Research and Experimental Development (SR&ED) tax incentives are a proven cornerstone of Canada’s innovation strategy, already supporting over 22,000 businesses.
That is why the federal government is boosting support for scientific research and experimental development to help more small- and medium-sized Canadian businesses invest in research and development (R&D). Currently, the SR&ED tax incentive program offers:
- Most corporations other than Canadian-controlled private corporations (CCPCs) a 15 per cent non-refundable tax credit on qualified SR&ED expenditures.
- CCPCs a fully refundable enhanced tax credit at a rate of 35 per cent on up to $3 million of qualifying SR&ED expenditures annually. The expenditure limit is gradually reduced where taxable capital employed in Canada for the previous taxation year is between $10 million and $50 million.
- CCPCs a 15 per cent tax credit for qualifying expenditures in excess of the expenditure limit. Depending on whether a CCPC’s income in the previous taxation year exceeds its qualifying income limit, these credits can be partially refundable.
- Unincorporated businesses, individuals, and certain trusts a 15 per cent partially refundable tax credit on qualified SR&ED expenditures.
Making this support more generous would further encourage Canadian businesses to invest in innovation and drive economic growth. In the 2024 Fall Economic Statement, the government is going beyond its commitment in Budget 2024 to further capitalize the SR&ED program by proposing to invest $1.9 billion over the next six years and make significant reforms to the program. Specifically, the government is proposing to:
- Increase 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;
- Increase from $10 million and $50 million, to $15 million and $75 million, respectively, the taxable capital phase-out thresholds for determining the expenditure limit;
- Extend eligibility for the enhanced 35 per cent refundable tax credit to eligible Canadian public corporations on up to $4.5 million of qualifying SR&ED expenditures annually.
- Restore the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program. The rules would be generally the same as those that existed prior to 2014 and would apply to property acquired on or after the date of the 2024 Fall Economic Statement and, in the case of lease costs, to amounts that first become payable on or after the date of the 2024 Fall Economic Statement.
These reforms will come into force for taxation years that begin on or after December 16, 2024, unless otherwise specified. Further details will be announced in the 2024 Fall Economic Statement.
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