As we look back on 2024, we’ve put together a summary of the most salient highlights in the SR&ED tax credit program.

AI permeates all businesses

At the close of the government’s 2023-2024 fiscal year, software development accounted for the largest portion of SR&ED claims, representing 39.3% of all claims filed. This category includes AI development, which is industry-agnostic. Virtually all companies are gaining insights into how AI can enhance their operations. Many businesses are finding that off-the-shelf AI solutions fail to meet their specific needs, requiring them to develop custom AI models. This is where SR&ED can help defray associated costs. Our technical experts can quickly assess whether your AI project qualifies for SR&ED.

Here are the trends we noticed during the year:

Trends in Software Development

AI and Machine Learning Integration: Artificial Intelligence (AI) and Machine Learning (ML) are now integral to software development. Companies are leveraging AI to enhance user experiences, automate processes, and derive actionable insights from big data. Generative AI models are revolutionizing how software is developed and deployed.

Cloud-Native Development: The adoption of cloud-native architectures continues to accelerate. Companies are utilizing microservices, containers, and serverless computing to enhance scalability, flexibility, and efficiency, optimizing resource use and reducing deployment cycles.

Cybersecurity Focus: With rising cyber threats, cybersecurity remains a top priority. Developers are employing secure coding practices, advanced encryption methods, and robust threat detection systems to safeguard applications and data.

In summary, the software development landscape in 2024 is characterized by advancements in AI, cloud computing, and cybersecurity. Concurrently, the SR&ED program provides vital support for innovative projects. However, companies must establish robust processes for time tracking, documentation, and differentiating SR&ED from routine R&D to avoid CRA reviews. Staying informed about these trends and leveraging available resources will position businesses for success in this rapidly evolving market.

Court cases

While there were no significant court cases in 2024, a noteworthy case from 2023 deserves attention. Canafric, a company producing frozen food products, had its SR&ED claim initially denied by CRA. The R&D involved projects experimenting with less salt, varying fat ratios, shorter cooking times, and no preservatives. The technological uncertainties centered on product stability, shelf life, and meeting other targets.

The courts ruled in favor of the taxpayer, recognizing sufficient technological challenges and advances. Canafric demonstrated a systematic approach—design, formulation, testing, and evaluation—supported by proper documentation.

This court case serves as a clear and practical application of the SR&ED criteria. In most instances where taxpayers have not been successful, the issue has stemmed from an inability to clearly articulate the technical challenges involved. Without demonstrating technological uncertainty, courts often view the project as simply applying standard best practices rather than engaging in true R&D.

Concessional Loans

CRA has historically classified certain government loans (concessional loans) as government assistance, requiring them to be netted against SR&ED expenditures when funding project costs. This stance, supported by prior court rulings, applied to non-interest-bearing loans from programs such as FedDev, ACOA, and Western Diversification.

However, on June 20, 2024, new legislation excluded bona fide concessional loans from being considered government assistance. The law, retroactive to January 1, 2020, applies to loans made after 2019. Such loans must be non-forgivable, evidenced in writing, include bona fide repayment arrangements, and be used for income-generating purposes.

This change allows companies to amend prior SR&ED claims affected by the previous provision. CRA has confirmed they will permit amendments to adjust claims for loans made after 2019.

CRA Review and Statistics

Recent data shows:

• 40% of all SR&ED claims are software-based.
• 40% relate to manufacturing and engineering.
• 20% involve life sciences, agriculture, and civil engineering.

Approximately 21,000 claims were filed in 2024, with the total SR&ED credits processed rising from $3.1B to $4.1B over the past few years. SMEs account for 97% of claims filed and 74% of SR&ED credits processed.

Grants and Other Non-Dilutive Funding

The most popular grants in 2024 included:

• CanExport
• IRAP
• Canada Job Training Grant

Non-interest-bearing regional loans from FedDev, ACOA, and Western Diversification were also prominent. Similar trends are expected in 2025, though grants for businesses impacted by U.S. tariffs may emerge, as seen during NAFTA renegotiations.

Contact us for a complementary assessment of your eligibility.