On November 4, 2025, Canada’s federal government tabled Budget 2025: Canada Strong, confirming significant enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive program. The changes, which are built on proposals originally announced in the 2024 Fall Economic Statement represent the most substantial update to the SR&ED regime in more than a decade. In addition, a bill has been tabled in the House of Commons, and we are now waiting for the legislation to be passed into law.

Below is an outline of what’s new and what Canadian businesses should consider as they plan their R&D tax strategies.

Overview: Why the SR&ED Changes Matter

The SR&ED program remains one of the most important federal tax incentives for supporting research and development in Canada. Historically, it provided:

• A fully refundable 35% tax credit for qualifying expenditures by Canadian-controlled private corporations (CCPCs) on up to $3 million of eligible SR&ED spend, subject to phase-outs based on taxable capital, and
• A non-refundable 15% credit for other corporations.
• Also, most provinces have their own R&D tax credit programs

Budget 2025 confirms that the government will proceed with and enhance a suite of changes to encourage innovation, broaden access, and improve the competitiveness of Canadian businesses.

Key SR&ED Enhancements in Budget 2025

1.Expanded Eligibility: Canadian Public Corporations

One of the most important improvements to the SR&ED program is that the new rules will extend eligibility for the enhanced refundable 35% SR&ED credit to certain eligible Canadian public corporations.  This is a category that was previously excluded from the 35% SR&ED tax credit refund rate. Canadian public companies were limited to a 15% non-refundable SR&ED tax credit rate.

To qualify as an eligible Canadian public corporation (ECPC) under the SR&ED regime, the company must meet certain criteria including:

• Be resident in Canada,
• Have a class of shares listed on a designated stock exchange, and
• Not be controlled, directly or indirectly, by non-residents.

This is a major change aimed at supporting innovation at scale. It enables certain publicly listed Canadian companies to benefit from refundable credits similar to CCPC’s.

2. Restored Eligibility for Capital Expenditures

For the first time in over 10 years, new capital expenditures used over 50% of the time in SR&ED activities are being restored as eligible for SR&ED tax credits. This is applicable for new equipment or capital property acquired after December 15, 2024.

This restores an important incentive for companies investing in equipment and other capital assets tied directly to their R&D efforts, increasing the attractiveness of long-term investments in innovation infrastructure.

3. Increase in Enhanced SR&ED Refundable Limit to $6 Million

The proposed rules provide for a significant increase to the allowable amount of SR&ED expenditures eligible for the enhanced 35% refundable tax credit. Previously set to increase to $4.5 million under earlier proposals, Budget 2025 raises this limit further to $6 million. The current legislation limits the 35% refundable SR&ED tax credit on expenditures up to $3M. This limit of $3M has now been doubled to $6M

CCPCs and eligible ECPCs can potentially claim up to $2.1 million annually in refundable SR&ED tax credits (35% of $6 million). This is a meaningful expansion of refundable tax support for R&D.

4. Higher Taxable Capital Phase-Out Thresholds

For CCPCs the budget confirms increased taxable capital thresholds for determining the phase-out of the enhanced 35% refundable SR&ED tax credit entitlement. These thresholds were raised from the former $10 million and $50 million levels to $15 million and $75 million, respectively.

For ECPCs the phase out will be based on average gross revenue for the 3 preceding years between $15M and $75m. CCPCs will also have the option of using this phase out method.

Businesses with growing capital bases now retain access to the enhanced refundable credit for a broader range of sizes than under the old rules. The higher phase-out limits accommodate rapidly growing technology and innovation firms.

5. Enhanced Administrative Improvements

The Canada Revenue Agency (CRA) has announced its intention to engage in targeted consultations to modernize SR&ED administration. This includes reviewing the SR&ED claim form (Form T661) and other procedural elements to improve efficiency and clarity.

Businesses should monitor changes to reporting requirements and claim processes. Improved administrative tools could reduce compliance costs and processing times.

Practical Considerations for Businesses

Planning Across Tax Years

Many of the enhanced rules apply for taxation years beginning on or after December 16, 2024, meaning that companies should assess now whether they qualify for expanded benefits.

Track Capital and Revenue Metrics

To maximize access to the enhanced refundable limit, firms should monitor:

• Their taxable capital employed, and
• Gross revenue profiles, particularly if adopting alternative eligibility structures.
  These metrics can influence how the enhanced credit phases out and which limit structure is most advantageous.

Consider Entity Structure and Public Status

With expanded eligibility to Canadian public corporations, some privately held companies considering access to capital markets may find tax strategy implications for going public. Careful planning with tax and corporate finance advisors can help quantify expected benefits.

Conclusion

Budget 2025’s confirmation and enhancement of SR&ED changes represent a substantive shift in how Canada supports business innovation. By increasing refundable credit limits, broadening eligibility to publicly traded Canadian firms, restoring capital cost eligibility, and modernizing administration, the federal government is signaling a renewed focus on research and development as a driver of economic growth.

For tax professionals, R&D leaders, and finance teams evaluating Canadian innovation incentives, these updates should be integrated into corporate R&D planning and forecasting for the next several fiscal years.

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