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

Hi Founders, 

Welcome to this week’s edition of Product for Founders, a newsletter for tech and $ savvy founders! We focus on AI must-knows for solid product decisions and the Canadian SR&ED program. 

What’s up for today?

> 4 updates to the SR&ED program - PS, they’re awesome

> Tips to help you prepare your company

Read time: 3 mins

TL;DR 

If your startup is in Growth Stage, these changes are geared towards YOU.

1. The ceiling on SR&ED expenditure (think salaries, contract payments etc.) has been raised to $4.5MM (from $3MM).
2. Capital expenditures are now eligible for SR&ED (again)!
3. Are you weighing the pros and cons of going IPO? You’ll still be eligible for SR&ED
4. You have more runway on capital expenses till you hit the SR&ED ceiling. It is now $15-75MM (from $10-$50MM).

A detailed analysis

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.

But why?

• SR&ED is the backbone of Canada's innovation funding, supporting over 22,000 businesses.
• Need to stay competitive with our neighbours aggressively courting tech companies.
• Incentivize growth and later stage 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.

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 or specialized photography equipment for your computer vision research. 

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. 

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 COOs - plan your R&D strategy

1. If you've been holding off on major R&D infrastructure investments, now might be the time to move forward, given the return of capital expenditure eligibility.
2. You can plan to expand your R&D spend - if you were previously coming close to the $3MM SR&ED expense limit, with the raised ceiling of $4.5MM, you have more runway.
3. If you're considering going public, the extension of SR&ED to public companies removes one significant financial barrier from that decision.

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.

Pro tip

These changes take effect for taxation years beginning on or after December 16, 2024. Start planning now to ensure your company is positioned to take full advantage of these enhanced benefits when they come into force.

Let’s build together,

Varsha

PS - If you're looking for help on SR&ED or boost your AI R&D product strategy, let's chat!