Big Upgrades to Canada’s SR&ED Program in 2025: What It Means for Your Business
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In August 2025, the Department of Finance Canada released draft legislation that significantly expands and enhances the SR&ED tax-incentive program. These are the biggest changes in over a decade — and they could make R&D, product development, and innovation far more accessible to Canadian companies. PwC
What’s New: Key SR&ED Enhancements for 2025
Higher Refundable Credit Limit
- For taxation years beginning after December 15, 2024, eligible businesses — including certain private and public corporations — can now claim the enhanced 35% refundable SR&ED Investment Tax Credit (ITC) on a larger base of expenditures.
- The annual expenditure threshold for eligibility has increased, allowing businesses to claim a greater amount of refundable credits.
Expanded Eligibility — Now Includes Some Public Corporations
- The enhanced 35% refundable credit is no longer limited only to private controlled companies. Under the new proposal, certain Canadian public corporations may also qualify — opening the door for mid-sized or publicly traded companies to benefit from the enhanced credit.
Capital Expenditures Are Back in Play
- For property (e.g. machinery, equipment) acquired after December 15, 2024, capital expenditures are once again eligible for SR&ED deductions and ITCs. This is a major win for companies investing in hardware, prototypes, manufacturing equipment, or infrastructure for R&D.
Why the 2025 SR&ED Updates Matter — For Innovators, Startups, and Growing Businesses
These changes signal a meaningful shift by the government toward supporting innovation, R&D, and growth — with clear benefits for companies building new products, technologies, or processes in Canada.
- More non-dilutive funding: Startups and growing firms can access more cash back through refundable tax credits — helpful when equity financing is expensive or undesirable.
- Better incentive for heavy investment: For businesses needing expensive equipment, prototypes, or manufacturing infrastructure, restored capital-expenditure eligibility reduces upfront costs for innovation.
- Broader access: Even public companies — not just small private firms — may now participate, helping larger or scaling firms continue R&D without tax disadvantages.
- Improved runway for growth: The increased expenditure limit gives firms breathing room to scale their R&D investments while still benefiting from preferential ITC.
What You Should Do — Especially If You Run (or Plan) a Business
If you own a corporation, control a holding company, or plan to develop new products/services (e.g. your café business, flower-sales business, or any future ventures), now is a good time to:
- Review your past and planned R&D initiatives — including experimental development, new processes, product improvements, or manufacturing testing.
- Check whether your company qualifies under the updated SR&ED rules (private or eligible public corporation).
- Plan capital investments accordingly — acquisitions made after December 15, 2024 may now qualify for refundable ITCs.
- Engage a tax advisor or R&D consultant — to help maximize SR&ED claims under the new framework, and ensure compliance with eligibility criteria.
Final Thoughts
The 2025 updates to the SR&ED program represent one of the most significant reforms in years. For Canadian businesses, especially those innovating or scaling up — these changes offer renewed incentives to invest in research, product development, and growth.
If your company has any R&D, prototyping or capital expenditures planned — now is a great time to evaluate whether you can take full advantage of the enhanced SR&ED incentives.
