Canadian Government Proposes Changes to SR&ED Tax Incentive Program

The Canadian government has announced proposed changes to the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program. These changes aim to increase support for small and medium-sized businesses in Canada to invest in research and development.

The SR&ED program currently provides a 15% non-refundable tax credit for most corporations, while Canadian-controlled private corporations (CCPCs) receive a 35% refundable tax credit on up to $3 million of qualifying expenditures. The government plans to increase this expenditure limit to $4.5 million, allowing CCPCs to claim up to $1.575 million annually. Additionally, the taxable capital phase-out thresholds will be raised from $10 million and $50 million to $15 million and $75 million, respectively.

Eligibility for the enhanced 35% refundable tax credit will also be extended to eligible Canadian public corporations on up to $4.5 million of qualifying expenditures annually. Furthermore, the government intends to restore the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program. These changes will apply to property acquired on or after the date of the 2024 Fall Economic Statement.

These reforms are set to take effect for taxation years beginning on or after December 16, 2024, unless specified otherwise.