Canada has taken a major leap forward in its commitment to the domestic tech ecosystem.
The federal government recently implemented Bill C-15, representing the most significant changes to the Scientific Research and Experimental Development (“SR&ED”) program in over a decade. These changes come at a critical time, as Canadian startups have been facing increasing pressures to incorporate and operate in the U.S.
For Canadian founders weighing whether to build at home or look south of the border and for venture capital funds evaluating Canadian investments, the updated SR&ED program serves as a powerful incentive to keep high-value intellectual property and talent in our ecosystem.
What is the SR&ED Program?
The SR&ED program is Canada’s flagship federal tax incentive designed to encourage Canadian businesses to conduct research and development (“R&D”), incentivizing innovation by allowing those companies to recover a significant portion of their expenditures.
Administered by the Canada Revenue Agency (“CRA”), eligible companies can claim deductible expenses to reduce taxable income and claim a refundable investment tax credit (“ITC”) on qualifying R&D expenditures to reduce income tax payable.
A key feature of SR&ED for emerging tech companies is the refundability of credits, which can provide a direct cash injection even before the company is profitable. SR&ED often functions as essential, non-dilutive funding that can extend a startup’s runway and finance the next phase of its growth cycle.
2026 Changes to the SR&ED program
The recent changes modernize the SR&ED program and apply to taxation years beginning on or after December 16, 2024.
Four key developments stand out:
- Doubling the ITC: The cap on eligible expenditures for the 35% refundable ITC has increased from $3 million to $6 million, meaning qualifying companies can now receive up to $2.1 million in refundable credits annually.
- Eligibility for Public Companies: Perhaps the most notable development, eligible Canadian public corporations (“ECPCs”), essentially public companies that are not controlled by non-residents, can now access the 35% refundable ITC. This opens what has historically been a benefit only for Canadian-controlled private corporations to the junior Canadian capital markets. Companies listing in Canada can now qualify to maintain their refundable ITC post-listing.
- Enhanced Scaling Threshold: The phase-out threshold has also increased, from $10–$50 million in taxable capital to $15–$75 million. By raising the threshold and eliminating the revenue-based phase-out, companies can now scale further and raise more capital while maintaining access to the enhanced rates for longer.
- Hardware and Equipment Once Again Eligible: Capital expenditures on equipment and machinery are once again eligible for both the SR&ED income deduction and the ITC for property acquired after December 15, 2024. This should boost companies’ development hardware and robotics, among others.
Not to be lost in the innovation headlines, the CRA is implementing a streamlined, AI-assisted review process that is intended to reduce the administrative burden for compliant companies. For companies that keep their internal documentation up to date, this should make SR&ED more accessible.
What This Means for Founders
The changes to the SR&ED program reflect a meaningful commitment to reshaping the Canadian tech ecosystem. By increasing the available cash recovery and opening the program to junior public companies, the federal government aims to position Canada as a leading hub for innovation.
For founders evaluating where to incorporate, build and scale their company, SR&ED now represents an even stronger financial incentive to go the distance in Canada. The Pulse Law team works with Canadian tech companies at all stages of the growth cycle – from initial capital raises to public listings and M&A. We encourage you to reach out to our team with any questions about how the new SR&ED benefits could impact your next transaction or capital raise.
