2025 Budget Changes
Canada is revamping the SR&ED program: So what’s new?
With an increased mandate to support Canadian innovation, the Canadian Federal Government has announced major changes to the SR&ED tax incentive program with the goal of investing in more innovation and capital investment in Canadian based R&D. While the federal budget still needs to be voted in, we can still explore what this might mean going forward.
Some of the Proposed key changes are:
Higher Expenditure Limits: Annual thresholds for CCPC’s (Canadian Controlled Private Corps) have now increased from $3 million to $4.5 million (with potential for further increase to $6 million), giving CCPC’s access to the enhanced 35% refundable investment tax credit (ITC) for larger spends.
Expanded Phase-Out Thresholds: Companies get the highest SR&ED credit rate until they reach a certain size. As they grow bigger, the credit rate gradually “grinds down” until they no longer qualify for the enhanced rate. These limits relate to the companies taxable capital.
Old rules: Starts at $10 million and finishing at $50 million
New rules: Starts at $15 million up to $75 million
This change is aimed to help mid-sized businesses qualify for the enhanced credits (35% instead of 15%)
Extended Eligibility for Public Companies: Eligible public corps can now access the 35% refundable rate on up to $4.5 million (with further increase proposal to $6 million) of eligible R&D spend each FYE
Capital Expenditure Eligibility Restored: Eligible capital expenditures incurred on or before Dec 16th 2024 will become claimable under the same rules used prior to 2014.
Future Modernization of the SR&ED process: Proposed improvements involve the development of digital tools and automation in order to streamline claim processing, and the piloting of a pre-approval or pre-qualification process for certain R&D projects.
FYE’s applicable: These reforms apply to taxation years beginning on or after Dec 16, 2024
Final Thoughts
Its encouraging to see a renewed commitment to SR&ED through federal investments and commitments to R&D funding. Raising expenditure limits and increasing access helps to signal real efforts to strengthen our Canadian innovation system.
That said, long term impacts will ultimately depend on how this budget is balanced/implemented, and how efficiently new measures reach businesses investing in R&D.
TL;DR (Summary)
More funding focused on mid-sized businesses and capital projects as the government is looking to build up the Canadian R&D sector via investments in equipment, facilities, and talent.
Strategic claim preparation is more important that ever in order to maintain compliance and maximize credits with data-driven documentation. Well organized narratives, technical support, and financial traceability remain key to risk reduction.
At Spritz, this has always been our mission: Enabling companies to leverage non-dilutive funding programs to maximize growth opportunities through experience, strategy, and smart execution (and partnering with some great people along the way).
-Mark