One of the most common questions we get is: What’s the limit on SR&ED tax credits a company can claim each year?

The short answer: There is no overall cap on the amount of SR&ED tax credits a company can receive. However, the rate and refundability of the credit do change once a company exceeds certain thresholds.

Current Expenditure Limits for CCPCs

For Canadian-Controlled Private Corporations (CCPCs)¹ that meet the taxable capital test, the SR&ED tax credit works as follows:

• 35% refundable federal tax credit on eligible SR&ED expenditures up to $3 million
• 15% federal credit on eligible SR&ED expenditures above $3 million, of which only 40% is refundable

Example:

Total SR&ED expenditures: $4,000,000

• $3,000,000 @ 35% = $1,050,000 (fully refundable)
• $1,000,000 @ 15% = $150,000 ($60,000 refundable, $90,000 non-refundable)
• Total SR&ED ITCs = $1,200,000
  • $1,110,000 refundable
  • $90,000 non-refundable

In short, there is no limit to the amount of SR&ED tax credits a company can receive. However, once a qualified CCPC exceeds the $3M expenditure limit for the associated group, the SR&ED ITC reduces from 35% to 15% and the refundable portion reduces from 100% to 40% of qualified SR&ED expenditures.

Potential Changes Announced in the 2024 Fall Economic Statement

It seems that every 10 or so years the SR&ED program is reviewed to determine the impact it’s having and whether changes to the program guidelines are required.  Recently, the SR&ED program went through various rounds of consultation.  As result there were proposed changes announced in the 2024 fall economic statement.  Two of these changes pertain to the topic of this article:

• 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.
• 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.

There seemed to be a stall when the government was pro-rogued and not much was heard since.  However, now that the federal election is over, we’ve heard that these changes may still come into effect in the coming months.

A major boost to Canadian companies would be that a Canadian Public Company would be eligible for a 35% federal refundable tax credit on eligible SR&ED expenditures. This would open the program to many high-tech Canadian Public companies that prior, would only be eligible for a non-refundable credit of 15% on a federal level. This would drastically increase the recognized benefit of the SR&ED program for these companies and allow them to reinvest in R&D related activities.

On the same topic of this article, the proposed change of increasing the expenditure limit for CCPCs to $4,500,000 will also be a big change. This means that companies with high SR&ED expenditures would have an additional $1,500,000 of expenditures that they can leverage the 35% refundable federal rate, rather than having it drop down to 15%, of which only 40% is refundable.  We’ve heard that this proposed change may even extend to have a $6,000,000 SR&ED expenditure limit.

Other Notable Proposed Changes

• 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
• 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.
• Further, there is discussion that in the coming months Canada will have our own version of a patent box regime and have flow-through shares for innovative industries.

Get Ahead of the Curve

Overall, there seems to be positive changes to come for innovative Canadian companies, the SR&ED program and other tax incentives.

If you’d like to understand how these changes could impact your SR&ED claims—or prepare for what’s coming—contact us for a consultation.

1. Canadian Controlled Private Corporations are only eligible for the 35% refundable federal tax credit if the taxable capital of the associated group is less than $10M. Where the taxable capital for the associated group is between $10M and $50M the expenditure limit of $3M, and consequently the 35% refundable ITC, is gradually reduced to the 15% non-refundable ITC rate. For more information on this, please contact us. ↩︎

Disclaimer : The information provided in this blog post is for general informational purposes only. All content, including text, graphics, images, and information, is not intended to be and should not be construed as professional advice of any kind (including but not limited to legal, financial, medical, or other professional advice).