Bottom line up front: Canada just announced the biggest enhancements to its SR&ED program in years, with higher credit limits, expanded eligibility, and the return of capital expenditure eligibility. Draft legislation was released on August 15, 2025, with these changes taking effect for tax years beginning after December 16, 2024. For manufacturers and scaling-tech companies in particular, this new is potentially game-changing..
If you run an innovative business in Canada, mark December 16th on your calendar. The federal government’s 2024 Fall Economic Statement brings major improvements to the Scientific Research and Experimental Development (SR&ED) program—meaning you could see a lot more money back in your business’s hands.
Latest Update: Draft Legislation Now Available
On August 15, 2025, the Minister of Finance released draft legislative proposals for consultation that would implement these SR&ED enhancements along with other previously announced tax measures. The government is seeking feedback from businesses and stakeholders through September 12, 2025, before finalizing the legislation.
This means the changes are moving from announcement to implementation, which is a clear signal that these enhancements are on track to become law.
The Big Four Changes That Matter
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Higher Credit Limits = More Cash Back
The annual expenditure limit for the enhanced 35% refundable tax credit has jumped from $3 million to $4.5 million. For Canadian-controlled private corporations (CCPCs), this means you can now claim up to $1.575 million annually in refundable credits (up from $1.05 million).
What this means for you: If you’re already maximizing your SR&ED claims, you could see up to $525,000 more per year in cash flow.
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Public Companies Finally Get Refundable Credits
Here’s where things get even more interesting: Canadian public companies can now access the same enhanced 35% refundable tax credit on up to $4.5 million in eligible expenses. Previously, only CCPCs could benefit from this.
To qualify, public corporations must be Canadian resident, have shares listed on a designated stock exchange (or elect to be a public corporation), and not be controlled by non-residents.
What this means for you: If you’re a public company that’s only been able to use non-refundable credits, you can now get real cash back from your R&D investments.
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Phase-Out Thresholds Get More Generous
The taxable capital phase-out thresholds have increased from $10-50 million to $15-75 million. Plus, CCPCs now have the option to use a gross revenue-based calculation instead of taxable capital, using the same structure as public corporations.
What this means for you: More mid-sized companies can now access the full enhanced credit, and you have more flexibility in how eligibility is calculated.
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Capital Expenditures Are Back
Capital expenditures are once again eligible for both SR&ED deductions and investment tax credits, applying to property acquired on or after December 16, 2024. The rules will be generally the same as those that were in effect before 2014.
What this means for you: Equipment, machinery, and other capital investments for your R&D activities can now qualify for tax benefits again.
Why Manufacturers Should Be Especially Excited
Manufacturers are among the biggest SR&ED claimants, and these changes are especially valuable for the sector. Here’s why:
Equipment-Heavy R&D: Manufacturing R&D often involves significant capital investments in specialized equipment, prototyping machinery, and testing apparatus. With capital expenditures back in the program, manufacturers can now claim these substantial investments.
Scaling Challenges: Many manufacturing companies hit the previous thresholds as they scaled, losing access to enhanced credits just when they needed them most. The higher phase-out thresholds mean you can maintain eligibility longer as you grow.
Process Innovation: Manufacturing R&D often focuses on process improvements and automation – areas where the enhanced credits can provide crucial support for development costs.
What You Need to Do Right Now
Stay Informed During the Consultation Period
With draft legislation now available and the consultation period open until September 12, 2025, this is your chance to review the proposed changes and share your feedback if you have specific concerns or suggestions. You can send your comments to [email protected].
For Tax Years Starting After December 16, 2024
- Review your R&D roadmap: With higher credit limits, you might want to accelerate or expand planned R&D activities.
- Revisit your equipment strategy: Capital expenditures are eligible again. Equipment purchases you’ve delayed could now bring you significant tax savings.
- Review your eligibility: If you’re a public company or nearing the old limits, you may now qualify for enhanced credits.
- Plan your timing: These measures are effective for taxation years beginning on or after December 16, 2024, so timing matters for when you start new R&D projects.
Documentation Is Still King
Keep in mind: you still need strong documentation to prove your activities qualify as SR&ED. The government hasn’t changed the core requirements—just made the program more generous for those who meet them.
The Bigger Picture
The August 15, 2025 release of draft legislation confirms that Canada is moving ahead with these SR&ED improvements as part of a broader tax package. SR&ED is one of the federal government’s largest tax expenditures, totaling $3.9 billion in foregone revenue for 2022-23. The government expects these enhancements to cost another $1.8 billion over the next five years—a clear sign of its commitment to Canadian innovation.
This isn’t just a minor update—it’s a major investment in helping Canadian companies stay competitive and encouraging them to keep their R&D activities at home.
What’s Coming Next
The government has indicated that these changes are just the start, with more SR&ED reforms expected in Budget 2025. They’re also considering a patent box regime to offer further tax incentives for intellectual property development.
Getting the Most Out of These Changes
The enhanced SR&ED program is more generous than ever, but you still need to navigate it carefully to get the most out of it. Whether you’re a manufacturer investing in new production tech, a tech company building AI solutions, or any business pushing innovation, these changes are a real opportunity to boost your cash flow and accelerate your R&D.
The key is understanding how these changes apply to your specific situation and ensuring your R&D activities and documentation align with SR&ED requirements. With the right approach, these enhancements could provide the financial boost your innovation projects need to reach the next level.
Ready to see how these SR&ED changes could benefit your business? The enhanced program opens up more opportunities than ever, but making the most of them still requires expertise. Consider working with SR&ED specialists to ensure you maximize these new benefits while staying fully compliant.
