What Budget 2025 Means for SR&ED and Canadian Innovation

When François‑Philippe Champagne delivered the 2025 federal budget on 4 November 2025, it marked the first time in Canada’s new budget cycle that the government tabled a full budget in the fall. The overall theme of “Canada Strong” emphasizes investment‑led growth, resilience and productivity in a world that is becoming more protectionist. For companies investing in research and development, the budget contains significant proposals that build on changes announced in the 2024 fall economic statement. Below is an overview of how Budget 2025 affects the Scientific Research and Experimental Development (SR&ED) program and broader innovation initiatives, along with commentary from respected analysts.

Major SR&ED proposals

Budget 2025 reiterates the government’s commitment to expanding the SR&ED program. The enhanced 35 % refundable tax credit has historically been targeted at Canadian‑controlled private corporations (CCPCs) with a $3 million expenditure limit.  Changes announced in late 2024 increased that limit to $4.5 million and expanded access to certain public corporations. This is big. For the first time, Canadian public corps can now benefit from the same generous and refundable tax credit normally reserved from private corps. Budget 2025 goes further:

• Increase in the expenditure limit to $6 million: The budget proposes to raise the annual expenditure limit that qualifies for the enhanced SR&ED credit from $4.5 million to $6 million, effective for taxation years beginning on or after 16 December 2024.  This measure aims to help innovative firms scale up and comes on top of previously announced expansions of eligibility and thresholds.

• Broader access and higher thresholds: The government is proceeding with previously announced changes that increase the phase‑out thresholds for CCPCs and allow Canadian public corporations to earn the refundable credit on up to $4.5 million of eligible expenditures. Public companies will see the refundable limit gradually reduced when their three‑year average gross revenue exceeds $15 million and eliminated at $75 million.

• Return of capital expenditures: Budget 2025 confirms the reinstatement of capital expenditures as eligible SR&ED costs.  Qualifying equipment purchases and leases can again be deducted and earn SR&ED credits, restoring a funding avenue that was removed in 2013.

  
  

Simplifying the Process

Many companies have found SR&ED compliance burdensome and uncertain.  The budget promises reforms that should make the program more accessible:

• Elective pre‑claim approval: The Canada Revenue Agency (CRA) will pilot an elective process in which businesses can obtain an up‑front technical approval of their projects before incurring costs. Claims submitted through this process would be processed within 90 days, half the current 180‑day timeline.

• Streamlined reviews and AI: Budget 2025 directs the CRA to eliminate unnecessary steps, reduce information requirements and use artificial intelligence to identify low‑risk claims, allowing them to be processed more quickly.

• Consultations and reforms:  The CRA will launch targeted consultations and may redesign the SR&ED claim form. We’re not sure where this will go exactly, but change is anticipated.

Outlook for innovators and claimants

Taken together, Budget 2025 positions Canada as a more attractive place to perform R&D and invest in productivity‑enhancing assets. The proposed $6 million SR&ED expenditure limit, broader eligibility for public companies, return of capital expenditures and streamlined administration should make the SR&ED program more generous and predictable. These proposals remain draft legislation and could evolve through consultations and legislative process. Businesses should continue documenting their R&D activities rigorously and engage with advisors to understand how the new rules, once enacted, will affect their tax planning and project financing. Nonetheless, the direction of travel is clear: innovation and productivity are at the heart of Canada’s economic strategy. For companies planning their 2025‑26 R&D investments, Budget 2025 offers both enhanced incentives and a roadmap to navigate a rapidly changing global economy.