If you’re an innovation-driven company evaluating where to expand to advance your R&D, Canada just made the selection process easier. The Scientific Research & Experimental Development (SR&ED), a national R&D incentive program, has been significantly expanded to support companies investing in innovation.
For decades, SR&ED has been a fundamental pillar in Canadian innovation, helping drive the creation of new technologies with the aim of commercialization. It is designed specifically to help companies explore new ideas at the cutting edge – quantum technologies, new materials, artificial intelligence applications, etc. – that result in more competitive products and services.
SR&ED is now poised to play an even bigger role in advancing R&D across the country. With Bill C-15 now enacted and the Federal Budget 2025 measures in force, the program has undergone a substantial transformation. For companies considering expansion to Waterloo, one of North America’s most active tech and innovation ecosystems, the timing couldn’t be better.
Key Takeaways
- Canada’s SR&ED expenditure limit has doubled to $6 million, allowing qualifying companies to earn up to $2.1 million in annual refundable credits
- Capital expenditures on R&D equipment and machinery are eligible again for deductions
- The phase-out thresholds have been updated to $15 million – $75 million in order to support scaling businesses
- Eligible Canadian public corporations can now access SR&ED’s enhanced 35% refundable credit for the first time
- A new pre-claim approval process launching April 1, 2026, will cut standard processing times in half
Here are the five big changes:
1. The enhanced expenditure limit has doubled
The most immediate change: the annual expenditure limit for the enhanced 35% refundable SR&ED investment tax credit has increased from $3 million to $6 million, effective for taxation years beginning on or after December 16, 2024.
That means qualifying companies can now earn up to $2.1 million in refundable credits annually — cash back on R&D spending, not just a deduction. For scaling companies in software, AI, fintech, cleantech or advanced manufacturing, this showcases that Canada is more than willing to co-fund innovation.
2. Capital expenditures have been reinstated
One of the most anticipated changes restores something that was eliminated over a decade ago: capital expenditures are now eligible for SR&ED deductions and investment tax credits again. Equipment, machinery, prototyping tools and infrastructure primarily used for R&D all qualify, provided the property was acquired on or after December 16, 2024.
For hardware-intensive sectors like robotics, cleantech and life sciences (all well-represented in the Waterloo region), this reinstated eligibility makes a strong case for setting up an R&D operation in Canada.
3. Phase-out thresholds have been raised
SR&ED’s phase-out thresholds have been upgraded to support scaling businesses. Growing companies can now retain full access to the enhanced credit up to $15 million in taxable capital, with a full phase-out at $75 million. The old phase-out thresholds were $10 million to $50 million in taxable capital, marking a significant and sustainable boost that allows scaling businesses to keep their full credits longer.
4. More companies are now eligible
Historically, the enhanced 35% refundable credit was only available to Canadian Controlled Private Corporations. That has changed. Eligible Canadian public corporations innovating across clean tech, life sciences, advanced manufacturing and AI can now access the same enhanced refundable rate, up to $6 million in qualifying R&D spending.
Even if you don’t qualify for the enhanced 35% credit, you can still claim the standard 15% credit, which is available to all companies conducting R&D in Canada.
5. The process is faster and more predictable
The Canada Revenue Agency is also modernizing SR&ED administration. A voluntary pre-claim approval program is launching on April 1, 2026, giving companies upfront technical approval before incurring costs. The target is to reduce processing time from 180 days to 90 days for approved pre‑claims. AI-enhanced risk assessment will further accelerate straightforward claims. It’s a more predictable system, and predictability matters when you’re making long-term investment decisions.
“SR&ED has always been a meaningful part of the value proposition for companies choosing to do R&D in Canada,” said Erin D’Alessandro, Vice President of Business Development at Waterloo EDC. “These changes make the program even more appealing. For companies looking at Waterloo, the SR&ED updates add to our already-exceptional talent base and innovation ecosystem.”
Why this matters for Waterloo
The Waterloo community is home to a dense cluster of innovation-driven companies in AI, quantum, cybersecurity, health tech, fintech and advanced manufacturing. The region’s talent pipeline, anchored by the University of Waterloo, Wilfrid Laurier University and Conestoga College, is home to 95,000+ students. Our ecosystem, paired with the new SR&ED enhancements, makes a compelling case for establishing your next R&D hub in Waterloo. We have the talent, infrastructure and support system to help your company take advantage of the new SR&ED enhancements.
Waterloo EDC can connect you with the resources, incentives and ecosystem support to make it happen. Get in touch with our team today.