The Scientific Research and Experimental Development (SR&ED) program is Canada’s largest federal incentive for innovation, providing billions of dollars annually in tax credits to businesses conducting research and development. In the 2025 Federal Budget, the government introduced significant changes designed to strengthen support for Canadian innovation. These updates expand access to refundable tax credits, increase expenditure limits, and reintroduce capital expenditures as eligible SR&ED costs.
The new rules apply to taxation years beginning after December 15, 2024, meaning many companies with a December 31, 2025 year-end will begin benefiting from the updated framework.
For business owners investing in innovation, these changes could significantly increase the value of SR&ED claims and improve cash flow.
Below, we break down the key SR&ED changes introduced in Budget 2025 and what they mean for your business.
Key SR&ED Changes in the 2025 Federal Budget
The 2025 federal budget introduced several major updates to the SR&ED program, including:
- Restoration of capital expenditure eligibility
- Increase in the enhanced refundable credit expenditure limit
- Expanded access to the 35% refundable credit
- Higher taxable capital thresholds for CCPCs
- Support for growing and publicly traded Canadian companies
Together, these changes significantly expand the financial support available for companies investing in innovation.
1. Capital Expenditures Are Once Again Eligible for SR&ED
One of the most impactful updates is the return of capital expenditure eligibility under the SR&ED program.
Capital expenditures refer to the cost of equipment, machinery, and assets purchased specifically to support R&D activities.
These costs were removed from the program in 2014, but Budget 2025 restores their eligibility for property acquired after December 15, 2024.
To qualify, the asset must generally meet one of the following conditions:
- Be used 90% or more of its operating time for SR&ED activities in Canada, or
- Be expected to consume most of its value while performing SR&ED work.
Eligible assets may include:
- Laboratory equipment
- Testing machinery
- Prototype manufacturing equipment
- Specialized R&D tools
This change is particularly valuable for manufacturing, biotech, and hardware-focused companies that rely heavily on physical equipment to support research and development.
By restoring capital eligibility, the government is effectively reducing the real cost of investing in innovation infrastructure.
2. The Enhanced Refundable Credit Limit Doubles
Another major update is the increase in the maximum expenditure limit for the enhanced SR&ED refundable credit.
Previously, Canadian-controlled private corporations (CCPCs) could claim the enhanced 35% refundable tax credit on up to $3 million of eligible expenditures. Budget 2025 increases this limit to $6 million, effectively doubling the maximum refundable credit available.
3. Public Companies Gain Access to Enhanced Refundable Credits
Historically, the enhanced 35% refundable SR&ED credit was limited to Canadian-controlled private corporations (CCPCs).
Budget 2025 introduces Enhanced Public Corporation Credits, allowing certain eligible Canadian public corporations (ECPCs) to access the refundable credit.
4. Higher SR&ED Expenditure Limits for Growing Companies
The federal government also increased the SR&ED expenditure limit for the enhanced refundable credit.
Previously:
- Enhanced credit applied to the first $4.5 million of expenditures.
Under the new rules:
- The limit increases to $6 million of qualifying SR&ED spending.
This allows companies to maintain access to the higher 35% refundable rate while expanding their R&D programs.
5. Higher Capital Thresholds Keep More Companies Eligible
Budget 2025 also raises the taxable capital thresholds for CCPCs.
Previously, the enhanced credit phased out between:
- $10 million and $50 million in taxable capital.
Under the new framework, the phase-out range increases to:
- $15 million to $75 million.
This update is particularly significant because equipment and infrastructure investments often increase taxable capital quickly.
What These Changes Mean for Canadian Businesses
Overall, the 2025 SR&ED updates signal a stronger federal commitment to supporting Canadian innovation.
Key benefits include:
- More refundable funding.
- Greater support for capital-intensive innovation.
- Better support for scaling businesses.
- Expanded access to public companies
For businesses investing in research and development, these changes represent a valuable opportunity to unlock additional non-dilutive funding and accelerate innovation. Contact us to learn how the 2025 SR&ED changes could impact your business.