2025 SR&ED Updates that Canadian Tech Leaders Need to Know

[Update 30 Jul 2025] While the original 2024 SR&ED enhancement proposals have not yet been implemented, the new Canadian Liberal government has committed to expansions as outlined in their platform, including raising the expenditure limit to $6 million. Let's wait and watch!

TLDR: In late 2024, we wrote about exciting proposed changes to Canada's Scientific Research and Experimental Development (SR&ED) tax credit program. Since then, we went through a federal election and many were concerned that these proposed changes would not survive the election. While, none of the proposed changes have been implemented yet, we continue to have hope that they will. The liberal platform outlined at a high-level that they are committed to driving increased private sector investment in R&D through the SR&ED program - we eagerly await the forward momentum on this!

The original article follows:

The federal government just dropped some major updates to the SR&ED program that could significantly impact your company's R&D budget. Briefly, it is a $1.9 billion enhancement to the program over the next six years.

Why are these changes being proposed?

SR&ED is the backbone of Canada's innovation funding, supporting over 22,000 businesses. We have a renewed need to stay competitive and prevent Canadian innovators and entrepreneurs from being attracted away. The way to do this is to put up a big shiny sign that welcomes innovators, incentivize growth in a meaningful way and encouraging companies to scale and go public in Canada.

The 2 biggest wins for growing companies

WIN #1

What’s the change? 50% increase in the expenditure limit from $3MM -> $4.5MM.
Why should you care? This means you can increase your R&D budget and continue to claim SR&ED on the increased expenditure.
How does this compare to before? Previously, a CCPC would be eligible for a 35% federal SR&ED credit rate till they hit $3M in qualifying expenditures. The amount in excess of that would earn a credit at a reduced 15% rate. Now, the expenditure limit on which the enhanced 35 per cent rate can be earned will increase from $3M to $4.5M. This implies an additional $1.575M (or 35% of $4.5M) in refundable federal SR&ED tax credits.

WIN #2

What’s the change? You can claim capex like research equipment / machinery acquired on or after Dec 16, 2024 for SR&ED.
Why should you care? This increases the eligible expenditure that qualifies for SR&ED i.e. previously ineligible spend just became eligible! As an example - a multi-year Autocad license, GPU workstations for LLM inference, vacuum table for CNC machining. Both purchases and leases of the same will become eligible.

2 more wins if you’re even bigger

TSX Dreams

What’s the change? Public companies can access 35% of SR&ED federal tax credits upto a limit of $4.5MM SR&ED expenses.
Why should you care? It removes a major tax disadvantage of going public, and makes TSX IPOs a more attractive funding and growth strategy for your company.

Elastic pants

What’s the change? Taxable capital thresholds have been increased from $10-50 million to $15-75 million.
Why should you care? If your overall company’s capital expenses approached $10MM, you previously started to lose SR&ED credits. The government just added growing room - you won’t start losing credits until $15MM. Instead of SR&ED becoming $0 at $50MM, you now have until $75MM.

What This Means for Your AI/ML Company‍

For Growing Startups ($1M-$3M R&D spend)

You're already within the current limits, but capital expenditures like specialized ML hardware, multi-year software licenses, and research equipment are now back in play
Your GPU clusters, high-performance computing infrastructure, and specialized AI development tools can now qualify
The real benefit is expanded eligibility, not higher limits

For Scale-ups ($3M-$6M R&D spend)

Previously, you'd start losing SR&ED benefits after $3M
Now you can claim the full benefit on up to $4.5M in eligible expenditures
This could mean an additional $525K in federal refunds alone ($1.5M × 35%)

For Public or IPO-Ready Companies

The public company restriction has been lifted with enhancements
Going public no longer means losing SR&ED benefits
This removes a significant financial disincentive to IPO in Canada

A quick example

Assume that your company is Ontario based, has $4.5MM in R&D salaries in 2025. With these changes, you will be eligible for an additional $300K in refund!
Now, let’s say you go public in 2026 - Before these changes, your SR&ED refund would become $0. But now, you will still be eligible for SR&ED post IPO.

CEOs and CTOs - plan your R&D strategy

Scale your R&D teams through strategic hiring: The increased limits give you room to grow from $3M to $4.5M without losing SR&ED benefits
Invest in Infrastructure: That AI training infrastructure, specialized hardware, or multi-year software licenses you've been considering? The capital expenditure eligibility makes the ROI calculation much more attractive
Reconsider your IPO timeline: Public companies can now access 35% federal SR&ED credits, reducing the tax disadvantage of going public in Canada

Bottom Line

The government is sending a clear message about its commitment to keeping Canadian innovation competitive on the global stage.
For company leaders, the key takeaway is that now is the time to revisit your R&D strategy.
The increased limits and expanded eligibility create new opportunities for strategic investment in innovation, potentially with a significant portion of the cost offset by these enhancements.

Are there best practices you can implement TODAY, regardless of these SR&ED updates? Absolutely! Check out our Founder's cheat sheet to SR&ED.