What is SR&ED?
The Canadian SR&ED program is the largest tax credit initiative supporting R&D across industries, providing significant incentives for businesses to invest in research that fosters innovation. It encourages companies, from startups to large corporations, to undertake projects that advance technology, improve processes, and develop new products. The program’s primary goal is to drive economic growth by stimulating technological advancement, with an emphasis on creating solutions that improve Canadians’ quality of life. The SR&ED claim is filed along with the corporate tax return. Each claim consists of several sections, with the technical description of each project being the most important. The CRA requires claimants to select the field of science from a predefined list, enabling them to assign claims to experts in the relevant field. Consequently, this allows us to track the number of projects submitted for each field over time and deduce where companies are focusing their R&D efforts.Tracking Changes in R&D Focus: The Data Behind the Trends
We analyzed data on the fields of science for all SR&ED projects claimed over the past six years, aiming to understand the evolving trends in Canadian R&D. The results revealed significant changes in the focus areas of scientific research, providing insight into the direction in which Canadian innovation is heading. Note that some of the 2023 SR&ED claims are still being processed which explains why 2022 is the most recent data.
Two standout trends emerged: Medical and Health Sciences research has increased by 37% over the past six years, while Agricultural Sciences research has decreased by 13%. These shifts highlight the evolving priorities within Canada’s R&D landscape as we adapt to changing global and domestic needs.
Not surprisingly, computer science and software engineering have shown the largest increase in the number of projects, reflecting a broader transition toward technology and digital innovation. On the other hand, fields such as chemistry (including organic and physical chemistry), mechanical engineering, and food and beverage research have seen declines. In the health sciences sector, most fields have experienced growth, with the notable exceptions of pharmacology and pharmacy, which have slightly declined.
Trends in Natural Sciences and Engineering
Natural Sciences
Computer sciences now account for almost a quarter of all claims in the natural sciences category. This shift represents a significant evolution, as Canada strengthens its focus on digital transformation. Fields related to traditional chemistry, including organic and physical chemistry, have steadily declined since 2018. This shift is largely unsurprising as the global focus has shifted to digital innovation over traditional hardware and chemicals.
Canada’s capabilities in hardware development have remained significant, with companies like Matrox, which designs and manufactures graphics solutions, continuing to grow and employ hundreds of people in Quebec. Meanwhile, D-Wave Systems, a pioneer in quantum computing, is pushing the boundaries of quantum technology research, enhancing Canada’s presence in advanced technology sectors. Other notable Canadian companies making waves in computer sciences include Lightspeed, a leading provider of point-of-sale and eCommerce software.
Engineering and Technology
Within the engineering and technology domains, software engineering is the fastest-growing field. In 2018, there were 9,861 SR&ED projects claimed in software engineering, compared to 11,661 in 2022—a clear reflection of Canada’s increased focus on software development. Conversely, claims related to manufacturing, such as mechanical and equipment engineering projects, have decreased over the same period.
Canada boasts a number of prominent software companies, such as Shopify, Constellation Software, OpenText, and CGI, which have garnered international recognition in their respective fields. These companies are a testament to Canada’s growing reputation as a hub for software development and digital innovation.
Growth in Medical and Health Sciences
The Medical and Health Sciences sector has also experienced notable growth, with SR&ED claims rising from 5,973 in 2018 to 6,805 in 2022. Leading companies in this sector include Medtronic Canada, which focuses on medical technology solutions, and BlueDot, known for its innovative approach to infectious disease surveillance and analytics. These companies are driving advancements in medical research and helping to position Canada as a leader in healthcare innovation. The increased interest in medical research is partially driven by the demand for innovative healthcare solutions during the COVID-19 pandemic and continued efforts to address other public health challenges.
Interestingly, the only areas within health sciences that have experienced declines are pharmacology and medicinal chemistry. This may reflect shifts in funding priorities toward more pressing public health needs, the rise of biotechnology, and newer digital health solutions, which are reshaping the focus of healthcare research and development.
Agricultural Sciences: A Decline in Focus
The number of SR&ED claims in Agricultural Sciences has decreased by 21% over the past five years, indicating a reduced emphasis on traditional agricultural R&D. However, this decrease may not tell the full story. Agriculture in Canada is rapidly transforming, with significant growth in agricultural technologies, such as precision farming tools, drones, and IoT solutions. Venture firms like Cycle Capital, District Ventures Capital, and Farm Credit Canada are actively investing in agri-tech startups, and many of these innovations may fall under software engineering rather than traditional agricultural research.
What These Trends Tell Us: Analysis and Interpretation
Interpreting these trends in R&D activity is complex, given various factors that influence investment in different fields. For example, the increase in funding from the Industrial Research Assistance Program (IRAP) may have influenced shifts away from SR&ED claims in certain industries. Additionally, the broader trends reflect Canada’s economic transition from a manufacturing-focused economy to a knowledge-based one, with technology and healthcare taking center stage.
As we move away from traditional manufacturing, areas like mechanical, electrical, and chemical engineering are seeing relatively fewer investments compared to the thriving IT and healthcare sectors. This aligns with global trends, as the world increasingly relies on digital solutions and advanced technologies.
A Global Comparison: Canada’s Place in the Technology Landscape
Of the top 10 most valuable companies globally by market capitalization, eight are primarily focused on either software or hardware technology—companies like Apple, Microsoft, Google, Amazon, and Nvidia. In Canada, the only technology companies are Shopify and Constellation Software which fall into the top 10 most valuable companies, while the remaining companies are primarily focused on resources, finance, or media. This highlights Canada’s continuing reliance on natural resources, manufacturing, and banking, in contrast to the global trend of tech giants leading the economy.
However, the encouraging part is the steady growth of software and IT R&D within the country. If Canada continues to focus on investing in innovation, we may see more homegrown tech companies rise to the top. There is immense potential for Canada to build the next globally recognized technology company, but this requires continued emphasis on fostering an ecosystem of research, entrepreneurship, and support for innovation.
Conclusion
Over the past five years, Canada’s R&D landscape has undergone notable changes. The rise in projects in software engineering and health sciences reflects a shift toward a knowledge-based economy, driven by digital transformation and healthcare innovation. Meanwhile, the decline in traditional fields such as manufacturing and chemistry underscores the broader move away from physical goods to intangible assets, like software and services.
The SR&ED program continues to play a pivotal role in supporting this shift, helping companies invest in the kinds of research that will keep Canada competitive on a global scale. To secure a prosperous future, Canada must continue to invest in R&D, with a focus on emerging technologies and sectors that promise resilience, economic growth, and improved quality of life for all Canadians.
As we look ahead, it will be exciting to see how these trends continue to shape Canada’s economy. Will the focus on digital transformation create new leaders in the technology space? Will the growth in health sciences research make Canada a hub for medical innovation? Only time will tell, but the trends certainly point toward a promising future for Canadian innovation.
