In the 2024 Fall Economic Statement published on December 16th, 2024, the Canadian Government announced new enhancements to the Scientific Research and Experimental Development (SR&ED) program, expanding the eligible expenses, increasing limits for Canadian-Controlled Private Corporations (CCPCs), and allowing Canadian Public Corporations access to refundable tax credits for their SR&ED claims. These changes will offer Canadian corporations sustainable opportunities for non-diluted funding to reinvest in Canadian based R&D over a longer term as they scale up, go public, and succeed.
We see this as a great move by the government to encourage R&D that diversifies the economy, supports skilled work in Canada, and helps remove some of the frictions that can arise as companies we work with are finding success that under the current rules can cost them access to the refundable credits offered in the SR&ED program.
The Canadian government is proposing $1.9 billion over the next six years with significant reforms to the program to expand eligibility. Changes would go into effect for tax years beginning on or after December 16th, 2024. The proposed reforms include:
- Increased Expenditure limit for the enhanced 35% federal credit rate from $3 million to $4.5 million, allowing CCPCs to claim up to $1.575 million in fully refundable tax credits;
- Extend eligibility of the enhanced, refundable credit to Canadian Public Corporations for up to $4.5 million of qualifying SR&ED expenditures. Currently, Canadian Public Corporations are only eligible for a 15%, non-refundable federal credit;
- Restoring eligibility of capital expenditures which have been ineligible since January 1, 2014, for both deduction against income, and investment tax credit components of the SR&ED program, for property and leases acquired on or after December 16th;
- Increased taxable capital phase-out thresholds for determining expenditure limit. Currently, previous years’ taxable capital in excess of $10 million reduces the expenditures eligible for the enhanced 35% tax credit down to $0 at $50 million of taxable capital. The proposed changes increase the starting threshold to $15 million and the limit to $75 million.
Note that the legislation for these changes is not yet available, and the proposal is subject to change. We will be monitoring for updates and how they impact the SR&ED program.
As Canadian companies expand and grow their R&D programs, these changes will allow them access to important funding and encourage further investments in R&D in Canada as companies grow and/or transition from private to public.
Welch is proud to provide SR&ED services from strategic help, claim writing, and review. For further guidance on how you can utilize SR&ED to help grow your business in Canada, please contact your Welch LLP advisor.
