On December 13, 2024, the federal government of Canada announced the 2024 Fall Economic Statement, which includes significant new incentives. The purpose of these incentives is to help businesses innovate, grow, and create more job opportunities. The Scientific Research and Experimental Development (SR&ED) tax incentive program has helped boost innovation in Canada and supported over 22000 businesses. It is due to this reason that the federal government determined to improve the SR&ED program to help more small and medium-sized businesses invest in Research and Development (R&D) work.
What is included in the SR&ED tax incentive program?
At present SR&ED tax incentive program offers the following.
- 15% non-refundable tax credit on qualified SR&ED expenditures to most corporations except CCPCs
- CCPCs are eligible to receive a fully refundable enhanced tax credit at the rate of 35% on up to $3 million of qualifying annual SR&ED expenditures. The expenditure limit is gradually reduced where taxable capital in Canada in the previous year is between $10 million and $50 million.
- CCPCs are eligible for a 15% tax credit for qualifying expenditures in excess of the expenditure limit. These credits can be partially refundable based on whether a CCPC’s income in the previous taxation year exceeds the qualifying income limit.
- Unincorporated businesses, certain trusts, and individuals are eligible for a 15% partially refundable tax credit on qualified SR&ED expenditures.
Proposed Reforms in the SR&ED Program
The government of Canada plans to make reforms in the SR&ED program to encourage innovators to make significant scientific breakthroughs in Canada. The following are the reforms the federal government is proposing for the SR&ED program in their 2024 Fall Economic Statement. They plan to deliver $26 billion in tax incentives for Canadian businesses. The other reforms the government is proposing are –
- Increase the annual expenditure limit – It will allow Canada-controlled private corporations (CCPCs) to be entitled to earn an enhanced 35% investment tax credit (ITC) from $3 million to $4.5 million.
- Increase the prior-year taxable capital phase-out thresholds – It will help enhance credit from $10 million to $15 million and $50 million to $75 million.
- Extend enhanced refundable credit to Canadian public corporations – Eligible Canadian public corporations will also be entitled to the 35% refundable SR&ED ITC up to the increased $4.5 annual expenditure limit. However, the phase-out threshold of $15 million and $75 million will be based on the public corporation’s average gross revenues over the prior three years. Additionally, the qualifying expenditures exceeding the annual expenditure limit of an eligible Canadian public corporation will not be eligible for partially refundable SR&ED ITC.
- Restore eligibility of capital expenditures for deduction against income and ITC components of the SR&ED program – According to the new reform, capital expenditures are again eligible under the SR&ED program. It may allow businesses to include essential equipment and technology expenses in their claim.
These reforms will be effective for the taxation year that starts on or after December 16, 2024, unless informed otherwise.
At SR&ED Hub Advisors, we help businesses of varying sizes with customized SR&ED solutions. It includes funding, planning strategies to maximize SR&ED returns, filing SR&ED tax credit claims, and audit defense services. Our experienced team stay updated on everything related to the SR&ED program to help businesses maximize their SR&ED return. We assess your business to determine its eligibility for SR&ED programs and plan strategies to make the most of this tax credit program. Additionally, we aim to educate our audience on various SR&ED topics and recent updates in the SR&ED program. Visit us for more updates and blogs.
