The Canadian government is making significant reforms to the Scientific Research and Experimental Development (SR&ED) tax incentive program, aiming to boost support for innovation and research development.
These changes, which will impact thousands of businesses across Canada, promise enhanced financial support and encourage more investments in research and development (R&D).
The new measures are designed to not only support large businesses but also provide more robust support for small- and medium-sized enterprises (SMEs), ensuring they can remain competitive on the global stage. These changes include increased tax credits, expanded eligibility, and an increase in expenditure limits.
SR&ED Tax Credit Enhancements
The SR&ED program, a cornerstone of Canada’s innovation strategy, offers businesses tax credits to incentivize scientific research. The proposed reforms will increase the credit benefits, especially for Canadian-controlled private corporations (CCPCs).
- Increased Expenditure Limit for Enhanced Tax Credit
The expenditure limit for CCPCs will rise from $3 million to $4.5 million, allowing these companies to claim up to $1.575 million per year of the enhanced 35% refundable tax credit. This change is designed to make the program more accessible to businesses with higher qualifying expenditures. - Expanded Taxable Capital Thresholds
The taxable capital phase-out thresholds will be raised from $10 million-$50 million to $15 million-$75 million. This allows more businesses with moderate capital to access the enhanced benefits of the SR&ED program. - Eligibility for Public Corporations
Public corporations will also benefit from the enhanced 35% refundable tax credit, extending eligibility for the refundable credit to those with qualifying SR&ED expenditures up to $4.5 million annually. - Restoration of Capital Expenditure Eligibility
The government will also restore eligibility for capital expenditures under the SR&ED program. This will allow companies to deduct costs related to new equipment and property, which was previously excluded after 2014. The new rules will apply to properties acquired on or after December 16, 2024.
Reforms Set to Begin December 2024
These changes are slated to take effect for taxation years that begin on or after December 16, 2024. This timeline ensures businesses have time to adjust to the new rules.
With an additional $1.9 billion in funding over the next six years, the Canadian government is demonstrating its commitment to fostering innovation and research.
| Benefit | Current Limit | Proposed Limit | Impact | Applicable to |
|---|---|---|---|---|
| Expenditure Limit | $3 Million | $4.5 Million | Increased tax credit amount | CCPCs and Public Corporations |
| Taxable Capital Phase-Out | $10-$50 Million | $15-$75 Million | More businesses eligible | CCPCs |
| Refundable Tax Credit | 35% on $3 Million | 35% on $4.5 Million | Larger refundable claims | CCPCs |
| Capital Expenditure | Excluded after 2014 | Eligible again | Deductibility restored | All eligible businesses |
FAQs
What is SR&ED?
The SR&ED (Scientific Research and Experimental Development) program is a Canadian tax incentive designed to encourage businesses to conduct research and development activities in Canada. It offers tax credits to businesses for eligible R&D activities that advance knowledge or technology.
How will the increased expenditure limit affect businesses?
The increased expenditure limit will allow businesses, especially CCPCs, to claim more tax credits. This change will provide larger refunds and enhance their ability to invest in R&D without exceeding the expenditure cap.
Are public corporations eligible for the enhanced tax credit?
Yes, public corporations are now eligible for the enhanced 35% refundable tax credit on qualifying SR&ED expenditures, which was previously available only to CCPCs.
When do the SR&ED program changes take effect?
The proposed changes will be effective for taxation years beginning on or after December 16, 2024, giving businesses time to adjust and plan for the new incentives.
How does restoring capital expenditure eligibility benefit businesses?
Restoring the eligibility of capital expenditures will allow businesses to claim tax deductions for new equipment and property related to R&D activities. This move helps businesses reduce upfront costs and support long-term innovation efforts.
