SR&ED Draft Tax Legislation Released — Public Comments Due by Friday! (Sept 12, 2025)
🚨 Have Your Say on Major SR&ED Program Changes — The deadline to submit comments is Friday, September 12, 2025! 🚨
The Department of Finance has released draft legislation for several previously announced tax measures and is inviting all Canadians and stakeholders to provide feedback.
These proposed changes could have long-term implications for the SR&ED Program—don’t miss your chance to weigh in!
Submit your feedback by emailing: consultation-legislation@fin.gc.ca
On December 13, 2024 Deputy Prime Minister and Minister of Finance, Chrystia Freeland, unveiled a series of substantial enhancements to the Scientific Research and Experimental Development (SR&ED) program during a keynote address at the Toronto Stock Exchange. These changes, which we discussed in our article “Significant Enhancements to SR&ED Program Announced (2024)“, aim to bolster Canada’s innovation landscape by providing enhanced support and incentives for businesses engaged in research and development. On August 15, 2025, the Department of Finance released draft legislation confirming the changes to the SR&ED program.
SR&ED Changes in the Draft Legislation
The proposals, if enacted, would apply retroactively to taxation years beginning on or after December 16, 2024, and include three significant changes in respect to the SR&ED program:
- Increase the expenditure limit from $3 million to $4.5 million
- Raising the taxable capital phase-out thresholds
- Extend eligibility for the enhanced refundable SR&ED credit to public corporations as well as CCPC’s
Increased Expenditure Limit & Phase-out Thresholds
In the 2024 Fall Economic Statement the CRA stated the following regarding increasing the SR&ED expenditure limits:
“The 2024 Fall Economic Statement proposes to increase the expenditure limit on which the enhanced 35 per cent rate can be earned from $3 million to $4.5 million. As a result, qualifying CCPCs would be able to claim up to $1.575 million per year of the enhanced, fully refundable tax credit.
The taxable capital phase-out thresholds for determining the expenditure limit would also be increased from $10 million and $50 million to $15 million and $75 million, respectively.” 1
By raising these thresholds, more mid-sized businesses would remain eligible for the enhanced rate. Currently, firms with taxable capital above $50 million quickly phase out of the refundable benefit; extending the ceiling to $75 million reduces that “cliff effect” and broadens access to larger, scaling companies.
Extended Eligibility
In the 2024 Fall Economic Statement the CRA stated the following regarding extending the eligibility rules for the enhanced refundable tax credit:
“[…] proposes to extend eligibility for the enhanced refundable tax credit to eligible Canadian public corporations. An eligible Canadian public corporation would be a corporation that, throughout the taxation year:
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- is resident in Canada;
- has a class of shares listed on a designated stock exchange (a list is available on the Department of Finance website) or, if not, has elected, or been designated by the Minister of National Revenue, to be a public corporation; and,
- is not controlled directly or indirectly in any manner whatever by one or more non-resident persons.”2
This is a fundamental shift. Until now, the enhanced refundable SR&ED credit has been restricted to private companies, while public companies were limited to the lower 15% non-refundable rate. Making the enhanced credit refundable for Canadian public corporations significantly levels the playing field, particularly for R&D-intensive sectors such as technology, life sciences, and clean energy.
The draft also notes that “Instead of determining eligibility based on taxable capital, CCPCs would have the option to elect to have their expenditure limit for the enhanced SR&ED credit determined based on the same gross revenue phase-out structure proposed for Canadian public corporations.”3
This election could benefit CCPCs with unusual capital structures or rapidly growing balance sheets. However, it introduces added complexity: companies will need to model which calculation method—taxable capital vs. gross revenue—produces the most advantageous result for their claims.
Areas of Concern related to SR&ED Changes in the Draft Legislation
While the intent behind these updates is positive, the draft legislation leaves room for interpretation in two areas which could cause confusion or other issues for claimants:
- Capital Expenditures
- Lease Costs
Capital Expenditures (CapEx) for SR&ED
In the 2024 Fall Economic Statement the Department of Finance proposed reinstating CapEx eligibility:
“Eligible capital expenditures for the purposes of immediate expensing under the SR&ED program would be expenditures incurred to acquire new or used depreciable property that the claimant intends to either:
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- use all or substantially all of the operating time in its expected useful life in the performance of SR&ED in Canada, or,
- consume all or substantially all of its value in the performance of SR&ED in Canada.
Eligible property would be eligible for expensing once it becomes available for use.
If these criteria are met, the expenditure could be fully deducted for the purpose of determining taxable income in the year the eligible property becomes available for use or carried forward to the extent it is not deducted in the tax year (i.e., as part of a pool of deductible SR&ED expenditures).”4
Although carefully defined, reintroducing CapEx eligibility reverses a deliberate 2014 policy decision and risks creating confusion for claimants. If not clarified, companies may overstate capital costs or face disputes in CRA reviews, increasing audit risk and administrative burden.
Lease Costs for SR&ED
The draft legislation also discusses the possible re-allowance of leased equipment costs for SR&ED:
“Qualifying capital expenditures would also generally be eligible for the SR&ED tax credit, with some differences from those eligible for immediate expensing, including:
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- The acquisition of property that had been used or acquired for use or lease before it was acquired by the claimant would not be eligible for a tax credit.
- A SR&ED-related capital expenditure ineligible for a full deduction against income because it does not meet one of the all-or-substantially-all tests noted above could still be considered “shared-use equipment”, meaning that part of the cost of the property would be eligible for the tax credit.”5
This opens the door to some lease-related costs being considered, but it is not explicit. For industries such as biotech and advanced manufacturing—where leased specialized equipment is standard—uncertainty around definitions may result in inconsistent treatment between claimants or additional disputes with CRA reviewers.
Technical Ambiguities
In addition, key terms such as “taxable capital,” the new thresholds, and the definition of public corporations all rely on technical drafting that may be open to interpretation. Lack of clarity here could complicate compliance and introduce uneven access to the program.
How We Can Help
The SR&ED program is one of the most generous in the world, but it is also one of the most complex. These draft changes add new opportunities, but also new risks. Working with experienced SR&ED consultants can help ensure that claims are fully optimized, compliant, and structured to take advantage of policy updates. Professional support can make the difference between leaving money on the table and capturing the maximum allowable credit.
What can you do?
In the Department of Finance’s News Release “Government releases draft legislation for previously announced tax measures” they have invited “all interested Canadians and stakeholders to provide feedback on these draft legislative proposals“. Feedback must be submitted by Friday, September 12, 2025 by emailing consultation-legislation@fin.gc.ca. The consultation window is short, and these changes will have lasting impacts—now is the time to make your voice heard.