How the New 2024/2025 Budget Impacts Your SR&ED Claim

The Canadian federal budget for 2024, followed by structural updates taking effect into 2025, has introduced significant modifications to the Scientific Research and Experimental Development (SR&ED) program. These changes represent the most substantial adjustments to the SR&ED regime in over a decade and are overwhelmingly positive for Canadian innovators.

Here is a breakdown of what software founders and finance leaders need to know.

1. Increased Expenditure Limits for CCPCs

The most prominent change is the massive increase in the annual expenditure limit on which Canadian-Controlled Private Corporations (CCPCs) can earn the enhanced 35% refundable SR&ED credit.

Initially proposed to rise from $3 million to $4.5 million, the limit has been pushed even higher to $6 million. This means qualifying CCPCs can now claim a maximum refundable credit of up to $2.1 million per year, significantly boosting the runway for heavy R&D investors.

2. Expanded Eligibility for Public Corporations

In a major shift, eligible Canadian public corporations (ECPCs) can now qualify for the enhanced 35% refundable SR&ED credit on up to $6 million of qualifying expenditures. Historically, public companies were limited to a 15% non-refundable credit. This extends vital tax incentives to a broader range of scaling public companies.

3. Restoration of Capital Expenditures

Capital expenditures used more than 50% of the time in SR&ED activities are once again eligible for SR&ED tax credits and deductions. This policy, effective for new equipment acquired or leases entered into after December 15, 2024, encourages long-term investments in innovation infrastructure. While software companies traditionally have fewer physical capital expenditures than manufacturing firms, this can still be highly beneficial for companies investing heavily in specialized server hardware or testing laboratories.

4. Higher Taxable Capital Phase-Out Thresholds

The taxable capital thresholds that govern the phase-out of the enhanced 35% refundable credit have been increased:

• The lower threshold moves from $10 million to $15 million.
• The upper limit increases from $50 million to $75 million.

This adjustment simply means that as your company grows and accumulates capital, you won't lose access to the enhanced refundable credit as quickly as you used to.

Conclusion

The latest budget marks a strong recommitment by the federal government to foster domestic innovation. With higher claim limits and expanded eligibility, there has never been a better time to ensure your SR&ED tracking is accurate and optimized.

Don't leave money on the table. Make sure you are accurately separating eligible from ineligible software development and capturing all associated costs.