Canada’s Department of Finance has released the 2024 Fall Economic Statement on 16 December 2024. Among the key updates are enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive programme and more support for Canada’s innovators and start-ups.
Canada is a world leader in artificial intelligence and the government intends to use this edge to secure an economic competitive advantage to better serve Canadians. To create incentives for businesses to invest at home, the government intends to extend the Accelerated Investment Incentive for five years. This would deliver CAD 17.4 billion in tax incentives, unlock more investment opportunities and create jobs and growth.
The Scientific Research and Experimental Development (SR&ED) tax incentives are a proven cornerstone of Canada’s innovation strategy, already supporting over 22,000 businesses.
That is why the federal government is boosting support for scientific research and experimental development to help more small and medium-sized Canadian businesses invest in research and development (R&D).
Currently, the SR&ED tax incentive programme offers:
- Most corporations other than Canadian-controlled private corporations (CCPCs) have a 15 % non-refundable tax credit on qualified SR&ED expenditures.
- CCPCs a fully refundable enhanced tax credit at a rate of 35% on up to CAD 3 million of qualifying SR&ED expenditures annually. The expenditure limit is gradually reduced where taxable capital employed in Canada for the previous taxation year is between CAD 10 million and CAD 50 million.
- CCPCs a 15% tax credit for qualifying expenditures in excess of the expenditure limit. Depending on whether a CCPC’s income in the previous taxation year exceeds its qualifying income limit, these credits can be partially refundable.
- Unincorporated businesses, individuals, and certain trusts receive a 15% partially refundable tax credit on qualified SR&ED expenditures.
Making this support more generous would further encourage Canadian businesses to invest in innovation and drive economic growth. In the 2024 Fall Economic Statement, the government is going beyond its commitment in Budget 2024 to further capitalise the SR&ED programme by proposing to invest CAD 1.9 billion over the next six years and make significant reforms to the programme.
Specifically, the government is proposing to:
- Increase the expenditure limit on which the enhanced 35% rate can be earned from CAD 3 million to CAD 4.5 million. As a result, qualifying CCPCs would be able to claim up to CAD 1.575 million per year of the enhanced, fully refundable tax credit;
- Increase from CAD 10 million and CAD 50 million to CAD 15 million and CAD 75 million, respectively, the taxable capital phase-out thresholds for determining the expenditure limit;
- Extend eligibility for the enhanced 35% refundable tax credit to eligible Canadian public corporations on up to CAD4.5 million of qualifying SR&ED expenditures annually.
- Restore the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED programme. The rules would be generally the same as those that existed prior to 2014 and would apply to property acquired on or after the date of the 2024 Fall Economic Statement and, in the case of lease costs, to amounts that first become payable on or after the date of the 2024 Fall Economic Statement.
These reforms will come into force for taxation years that begin on or after 16 December 2024, unless otherwise specified. Further details will be announced in the 2024 Fall Economic Statement.
