On December 13, 2024, and as part of the 2024 Fall Economic Statement, the Federal Government announced intentions to ‘unlock billions in new capital and include significant new incentives to help businesses grow, innovate, and create good jobs.’
As part of their proposed mandate, this includes bold reform and significant enhancements of the Scientific Research & Experimental Development (SR&ED) tax incentive program, which is the cornerstone of Canada’s innovation strategy which supports over 22,000 businesses in Canada.
As quoted, 'these proposed changes represent the first of further reforms related to the SR&ED program and promoting innovation that the government intends to advance. More details on program administration and updates to qualified expenses will be announced in Budget 2025.’
As identified within the 2024 Fall Economic Statement, the intention is making the SR&ED program more generous, particularly for high-growth potential companies. Specifically, proposed changes to the program include:
Increase the annual expenditure limit on which Canadian-controlled private corporations are entitled to earn an enhanced 35 per cent investment tax credit, from $3 million to $4.5 million;
Increase the prior-year taxable capital phase-out thresholds for the enhanced credit from $10 million and $50 million to $15 million and $75 million, respectively;
Extend the enhanced refundable credit to Canadian public corporations; and,
Restore the eligibility of capital expenditures for both the deduction against income and the investment tax credit components of the SR&ED program.
These reforms will come into force for taxation years that begin on or after December 16, 2024, unless otherwise specified.
What these changes mean for Canadian businesses:
The increased expenditure limit and expanded thresholds directly address the needs of high-growth potential firms. These businesses often face scaling challenges due to limited access to funding for R&D. With greater financial support, firms can pursue disruptive innovations, creating a ripple effect of competitiveness and job creation.
The expanded phase-out thresholds will allow mid-sized businesses, often caught between startup incentives and larger-scale supports, to participate more fully in SR&ED. These companies are crucial to Canada’s economic growth, and this change ensures they have the tools to compete on a global stage.
By including public corporations in the enhanced refundable credit, the government is incentivizing larger-scale research projects. Public companies can now better align their R&D strategies with Canadian priorities.
The reinstatement of capital expenditures for SR&ED credits addresses a critical gap in the program. Businesses can now invest confidently in the infrastructure and tools necessary to conduct research.
Closing Remarks:
Canada finds itself at a pivotal moment, where fostering the growth of local businesses to drive innovation and generate wealth within the country is essential to remain globally competitive. While uncertainty remains with respects to the ongoing consultations by the federal government on ways to adjust/improve the Program, the proposed reforms are positive, a step in the right direction, and highlight the governments dedication to enhance the program. Although, work remains in streamlining the process and making it easier for claimants to navigate.
Should you have any questions on how the proposed changes may directly impact your business, please reach out to Knowledge Gap where we can provide tailored insights and analysis specific to you.