Bill C-15, the Budget 2025 Implementation Act, No. 1 received royal assent on March 26, 2026 and will be enhancing the SR&ED program by increasing the federal expenditure limit and taxable capital phase-out thresholds for the enhanced 35% investment tax credit (ITC), extending the enhanced credit to eligible Canadian public corporations (ECPCs), and restoring the eligibility of capital expenditures. These changes represent exciting new opportunities and improved support for innovation in Canada by expanding the categories of expenses can be claimed and the eligibility for refundable credits.
These changes will apply for tax years starting on or after December 16, 2024. They represent potential increases in income tax credits a corporation may be eligible for, meaning it will be worth investigating how these changes may benefit a corporation that has already claimed for the affected tax year, or is in the process of submitting an affected tax year. There is an 18-month window after the corporation’s year-end to submit SR&ED claims, which means there is not a need to scramble to amend tax returns and take advantage of these changes.
Increased Expenditure Limit
The expenditure limit is a cap on the expenses that can be claimed for SR&ED federal credits at the enhanced rate of 35%, which is refundable to the corporation. Expenses in excess of this limit are considered eligible for the basic 15%, non-refundable tax credit. The expenditure limit has now increased from $3,000,000 to $6,000,000, enabling up to $2,100,000 in refundable tax credits before any remaining expenditures are used to calculate non-refundable credits.
This threshold begins to decrease based on the eligible corporation’s taxable capital employed in Canada at $15,000,000 and reaches nil starting at $75,000,000. With additional claimable expenses including capital assets, this helps increase support for corporations reaching critical stages of development.
Canadian Public Corporations Gain Access to Refundable Credits
Previously, access to the refundable federal tax credits up to the expenditure limit were limited to Canadian-controlled private corporations (CCPCs), which meant a company ‘going public’ and seeking investment would need to weigh the cost of losing access to this non-diluted capital with gaining the capital they need to expand. Bill C-15 includes changes to allow ECPCs to retain access to refundable SR&ED credits. Such corporations must still reside in Canada and be controlled by Canadian residents, but they may sell a class of shares on designated stock exchanges.
ECPCs will have an expenditure limit for the refundable credit, calculated based on the average gross revenue from the last three years, starting at $15 million for the full $6 million expenditure limit and decreasing to $0 at $75 million on a straight-line basis.
Instead of using taxable capital as a metric, CCPCs now have the option to elect using the same gross revenue method to calculate the expenditure limit.
Capital Expenditures Are Back
In the 2012 Budget, capital expenditures made in 2014 or later were no longer considered eligible SR&ED expenditures, among other measures to reduce the program. With Bill C-15 becoming law, capital expenditures are once again eligible, as part of the Federal Government’s efforts to expand the program.
Capital expenditures refer to what are considered ‘depreciable property’, other than a building or leasehold interest in a building, and do not include non-depreciable property such as land, inventoried property, or intangibles such as goodwill.
These depreciable properties must be intended at the time of purchase to be used during all or substantially all (90% or more) of its operating time over their expected useful life to perform SR&ED activities in Canada. Note that unlike other current expenditures that are up to 100% refundable, the ITC earned on capital expenditures is up to 40% refundable. If a corporation has capital expenditures, they can quickly become a valuable item to add to their claim. Corporations that have already filed a claim may also want to consider amending their submitted or approved claim, as these expenditures will be eligible for all tax years beginning on or after December 16, 2024.
Navigating the Evolving Landscape
While CRA is working on updates and new forms based on these changes, corporations are still preparing SR&ED claims often as part of their T2 returns. Claims filed today will be assessed under the current rules, which can be fine for claims without capital expenditures or below the older expenditure limits. If a corporation stands to increase their claim value using the improvements to expenditure limits or capital expenditures, there are multiple options available to capture the benefits.
One option is to continue as planned and file a claim under the old rules, with a plan to file an amendment based on the changes when available. This can take an unknown amount of time to get the full ITCs but may speed up initial assessment of the claim and access to some credit based on the old rules.
An alternative option is for a corporation to wait for the published guidelines and forms from CRA before submitting their claim. This strategy provides a simpler path but will take longer to process as it depends on CRA’s timeline to implement changes. Furthermore, claiming a very large credit (such as adding significant capital expenditures) all at once may increase chances of a claim being audited compared to a smaller initial claim that is assessed and then amended with relevant additions.
A third option is to submit your claim with the expenditure limit manually calculated. If you submit your return with the expenditure limit adjusted, you may be assessed at the new rate before CRA publishes the updated forms, but you may also have an increased chance of review or audit.
How We Can Help
At Welch LLP, our team of SR&ED experts can provide consultation, support, and assistance preparing claims, reviewing your work, reviewing evidence practices and helping out in case of CRA review or unfavourable initial reviews. Contact us for more information.
