The federal budget was approved on November 17, 2025, and the new SR&ED rules are now set to move forward. These updates apply to any company with a tax year starting after December 15, 2024, which means businesses with a December 31, 2025 year-end will benefit from the new framework. This guide breaks down what the changes mean for CEOs, CFOs, founders and business owners, and outlines the financial upside they can expect. To make it even easier, we built a simple calculator that shows exactly how much more SR&ED funding your company could receive under the updated program.
This video explains exactly how to understand how these SR&ED changes impact your claim. Calculate your new SR&ED claim with our 2025 SR&ED Comparison Calculator.
Most of the benefit is for the following types of companies:
- Manufacturing (Inclusion of capital)
- Mid to large Canadian Controlled Private Corporations (CCPCs) (Increased expenditure limit)
- Eligible Canadian-owned Public Corporations (ECPC) (Increase expenditure limit plus refundable Investment Tax Credits (ITCs))
Budgeting for SR&ED in 2025
The calculator compares the federal SR&ED ITCs under the old SR&ED rules compared to the new, 2025, SR&ED rules. The main purpose is to demonstrate the gains from the new rules and allow for effective budgeting. Many mid-size and large companies have a consistent and predictable SR&ED program and therefore can accurately accrue ITCs from SR&ED.
While the new SR&ED rules do not necessarily make the program more predictable, if you’re a CFO and are budgeting and are confident in the strength of the SR&ED claim, this calculator will provide you with an accurate change in the federal ITCs.
Capital expenditures under the new 2025 SR&ED rules
The updated SR&ED rules restore eligibility for capital expenditures for property acquired after December 15, 2024. In practical terms, capital expenditures are the cost of equipment or machinery that a company buys specifically to support research and development work.
To qualify, the asset must meet one of two tests. It must be used almost entirely for SR&ED in Canada over its useful life, which means at least 90 percent of operating time. Or the company must expect to consume almost all of its value while performing SR&ED. This captures equipment that wears out quickly during experimental work.
If the equipment is used in other ways and does not meet the 90 percent threshold, a portion of the cost can still qualify as shared-use equipment. Used equipment can be deducted against income, but investment tax credits only apply to new property. If the company later changes how the asset is used or sells it, recapture rules may apply.
This change matters because it brings back a major source of support for manufacturers, biotech companies and any business that relies on laboratories, pilot lines or prototype hardware. It lowers the real cost of investing in new tools and gives founders another path to stretch their runway.
Doubling the refundable SR&ED limit changes the game for Canadian founders
One of the most important updates in the 2025 SR&ED changes is the increase in the maximum refundable investment tax credits for CCPCs. The ceiling moves from $1.05 million to $2.1 million. That is a major shift in how much non-dilutive capital a company can access at one of the most sensitive points in its growth.
For early-stage and scaling companies, this effectively doubles the refundable support available from the federal program. It gives technical teams more breathing room to hire, experiment and build without running straight to equity markets. With investor expectations tightening and valuations under pressure, the ability to unlock twice the refundable support through SR&ED helps extend runway and reduce dilution risk.
This is not just a small policy tweak. It signals a stronger federal push to back real innovation happening in labs, workshops and code bases across Canada. For founders making hard choices about where to place their next dollar, this higher refundable cap adds a meaningful lever to plan, budget and grow with more confidence.
Expanded access to the 35 percent refundable SR&ED credit
Another major shift in the 2025 SR&ED update is the introduction of Enhanced Public Corporation Credits, which finally opens the door for eligible public companies to receive the 35 percent refundable credit. This used to be reserved only for CCPCs, which meant most public companies could not access the highest refund rate. That barrier is now gone for companies that meet the new eligibility conditions.
This matters because it levels the playing field for innovative Canadian businesses that have grown past the private stage but still invest heavily in R&D. Many public tech, clean energy and manufacturing companies operate on tight margins during long development cycles. The ability to recover 35% of eligible SR&ED costs in cash creates a real boost to their ability to fund ambitious technical work without relying entirely on capital markets.
For founders and leaders charting a path toward going public, this change also removes a penalty that used to come with listing. Instead of losing access to refundable credits when shares trade on an exchange, companies can now continue to rely on SR&ED as a predictable source of non-dilutive capital. It strengthens the Canadian innovation pipeline and gives growing companies more flexibility in how they plan each stage of their journey.
Higher SR&ED expenditure limit gives growing companies more room to scale
The 2025 SR&ED update raises the expenditure limit from $3 million to $6 million. This limit determines how much of a company’s SR&ED spending can qualify for the enhanced refundable credit rate. Doubling it creates a far bigger opportunity for companies that are scaling their teams and pushing deeper into technical development.
For founders, this change means you can grow your R&D capacity without dropping out of the refundable bracket as quickly. Many companies hit the old $3M ceiling early, especially in hardware, biotech and advanced software. Once you crossed it, every extra dollar qualified only for a lower rate. Moving the ceiling to $6M lets companies build larger technical teams, run more experiments, and invest in more complex infrastructure while still accessing the most valuable part of the program.
This is a big win for companies that are in the messy middle of growth. It gives more flexibility in how budgets are structured and offers a longer runway of high-value support during the stage when experimentation is most expensive. It also builds a stronger bridge from early-stage innovation to late-stage commercialization across Canada.
Higher capital thresholds keep more CCPCs eligible for the enhanced SR&ED rate
The 2025 SR&ED updates raise the capital thresholds for CCPCs. The old range of $10 million to $50 million is replaced with a new range of $15 million to $75 million. These thresholds determine when a company begins to lose access to the enhanced refundable credit rate and when it is phased out entirely.
This matters because many high-growth Canadian companies scale quickly in their early years. Teams expand, assets grow, and balance sheets get stronger long before profitability arrives. Under the old rules, companies could age out of the enhanced refundable rate far too soon. The higher thresholds give founders more breathing room to grow without being pushed into a lower-value credit bracket just because the business is expanding.
For companies in hardware, cleantech, manufacturing and life sciences, this update is especially valuable. These businesses often need equipment, lab assets and facilities that inflate capital levels well before steady revenue arrives. By lifting the limits, the government is giving growing CCPCs more time to access the refundable rate while they push through expensive development cycles. It supports a smoother path from early innovation to full-scale commercialization and keeps more Canadian companies competitive as they grow.
If you want to see exactly how the 2025 SR&ED changes affect your company, start with the calculator. It will give you a fast and reliable estimate of the new federal ITCs you can expect. If anything in the rules feels unclear or you want a deeper look at your own situation, reach out. SR&ED can get complicated, and we’re always happy to walk through the details with you.
Definitions
These definitions will help you navigate the complexities of the CRA
Capital expenditures (also called “SR&ED-capital property expenditures”)
Capital expenditures may be claimed where a taxpayer acquires depreciable property (new or used) that it intends either to:
- Use all or substantially all (i.e., 90% or more) of the operating time in its expected useful life in the performance of SR&ED in Canada; or
- Consume all or substantially all of its value in the performance of SR&ED in Canada.
Additional points:
- The property must be acquired after December 15, 2024 (or lease amounts first payable after that date) to qualify.
- If the property was used in any manner (prior to the acquisition by the claimant), then it qualifies for the income deduction but not for the ITC component.
- If the property fails the “all or substantially all” test, it may still qualify as “shared-use equipment” where part of the cost is allocable to SR&ED.
- Recapture rules apply if the property is sold or its use is converted away from SR&ED.
Eligible Canadian Public Corporation (ECPC)
- Be resident in Canada
- Throughout the tax year has a class of shares listed in a designated Canadian stock exchange
- Is not controlled, directly or indirectly, by one or more non-resident persons.
Expenditure Limit
The maximum amount of a corporation’s SR&ED qualified expenditures that may earn the enhanced refundable ITC rate in a given tax year.
A corporation’s expenditure limit is calculated annually and determines how much of its SR&ED spending can be refunded at the 35% rate rather than the lower general rate.
Additional points:
- The limit is reduced (ground down) as a corporation’s taxable capital increases beyond the lower capital threshold.
- Associated corporations must share a single expenditure limit.
- Once a corporation’s SR&ED spending exceeds the expenditure limit, the excess still qualifies for ITCs at the non-refundable general rate.
Investment Tax Credit (ITC)
A federal tax credit earned on eligible SR&ED expenditures. The credit may be refundable or non-refundable depending on the corporation’s status and size.
A corporation may claim an ITC where it incurs qualifying SR&ED expenditures that fall within the applicable expenditure limit for the tax year.
Additional points:
- Refundable ITCs are paid out in cash even if the corporation has no tax payable.
- Non-refundable ITCs reduce taxes owing but do not generate a cash refund.
- CCPCs and eligible ECPCs may earn the 35% refundable ITC on qualifying expenditures.
Taxable Capital
The amount determined under Part I.3 of the Income Tax Act used to assess a corporation’s size for SR&ED purposes.
Taxable capital includes the corporation’s retained earnings, debt, share capital and other components defined under the Act.
Additional points:
- For CCPCs, taxable capital determines when the enhanced refundable ITC rate begins to phase out.
- A CCPC with taxable capital above the lower threshold sees its expenditure limit and refundable rate reduced.
- A CCPC with taxable capital above the upper threshold no longer qualifies for the enhanced refundable rate.
- Associated corporations must calculate taxable capital on a combined basis.
