Status of Proposed Change to the SR&ED Program (August 2025 Update)

R&D teams across Canada have been closely watching the government’s proposed changes to SR&ED tax credit program. Significant updates to SR&ED were announced in the Fall Economic Statement 2024 (December 2024), but as of August 2025 these changes are not yet law. Below we provide an informative update on what was proposed, where things stand now, and what to expect next.

Summary of Proposed SR&ED Changes (Announced in Decemeber 2024)

In December 2024, the federal government’s Fall Economic Statement introduced several proposed enhancements to the SR&ED investment tax credit program. According to official releases and expert analyses, the key SR&ED changes proposed include:

• Higher Expenditure Limit for 35% Credit: Increase the annual SR&ED expenditure limit eligible for the enhanced 35% federal tax credit from the current $3 million to $4.5 million. This would raise the maximum federal SR&ED credit for a Canadian-controlled private corporation (CCPC) from $1.05 million to $1.575 million per year.

• Expanded Phase-Out Thresholds: Raise the taxable capital range over which the enhanced credit is phased out, from the current $10–50 million range up to a $15–75 million range. In other words, larger CCPCs would retain access to the 35% credit until a higher size threshold (phasing out completely at $75M in taxable capital instead of $50M).

• Eligibility for Public Companies: Extend the enhanced 35% refundable SR&ED credit to certain Canadian public companies (not just CCPCs) on up to $4.5 million of qualifying R&D expenditures. Under the proposal, publicly listed Canadian corporations that meet eligibility criteria (e.g. Canadian-resident, not foreign-controlled) could claim the 35% credit on a limited expenditure amount. The $4.5M limit for public companies would phase out based on company size using a gross revenue test (phasing out as average revenues rise from $15 million to $75 million). This change aims to support small and mid-sized public firms (for example, tech or life science companies) that previously only qualified for a 15% non-refundable credit. (Notably, CCPCs could be allowed to elect to use the revenue-based phase-out instead of the taxable capital test if that is more favorable for them.)

• Reinstating Capital Expenditure Claims: Restore the eligibility of capital expenditures (e.g. costs of equipment, machinery for R&D) under the SR&ED program. Capital costs had been removed from SR&ED eligibility in 2014; under the proposal, businesses would again be able to deduct and claim investment tax credits on qualifying capital assets used in R&D, following rules similar to those in place pre-2014. For instance, machinery acquired after the announcement date that is used all or substantially all for SR&ED in Canada would be eligible for SR&ED deductions and credits (the draft even suggests up to ~40% credit on such capital spending in some cases).

Effective Date: These proposed changes were slated to apply for tax years beginning on or after December 16, 2024 (the date of the 2024 Fall Economic Statement). In practical terms, that means if and when enacted, the new SR&ED rules could retroactively cover R&D expenditures in most of 2025 for calendar-year companies.

Draft Legislation: Changes Not Yet Law (Open Consultation Until September 12, 2025)

Current Status (August 2025): The Department of Finance has recently taken steps to advance these measures by releasing draft legislative proposals on August 15, 2025. These draft income tax amendments include the SR&ED changes from Fall 2024, among other tax measures. The government has launched a public consultation period, open until September 12, 2025, to gather feedback on the draft legislation. Stakeholders and members of the public can submit comments on the proposed SR&ED changes via email to the Department of Finance during this period.

During this consultation and draft stage, the SR&ED proposals are still subject to revision or delay. It is not guaranteed that they will be implemented exactly as announced; adjustments could be made in response to feedback, or timelines could shift. As of now, the existing SR&ED rules remain in force, and claimants should be careful not to assume the new incentives are effective until the law is passed. We have observed some confusion in the industry, where a few SR&ED advisory firms have seemingly presented these proposals as if they were a done deal. In reality, the changes are not finalized; they remain draft proposals that could change before becoming law. R&D managers and CFOs should keep this in mind when planning: the enhancements (higher credit limits, capital claims, etc.) cannot be claimed yet, and any current-year SR&ED strategies should continue to follow the current legislation until official enactment.

What’s Next: Path to Implementation (Potential Timeline in 2025)

What would implementation look like if these proposals are adopted? After the consultation period ends on September 12, 2025, the government can move forward to introduce the finalized legislative package to Parliament. It is expected that these SR&ED measures will be included in a 2025 Budget Implementation Act (BIA) or similar omnibus tax bill in the fall. The House of Commons is scheduled to resume sitting on September 15, 2025, which is the earliest date such legislation could be tabled.

Should the government proceed on that timetable, we could see the SR&ED reform provisions formally introduced in Parliament by early fall (possibly in an October 2025 budget or economic update bill). The bill would then need to go through the usual legislative process (debate, committee, Senate review, etc.). If Parliament passes the bill and it receives Royal Assent by late 2025, the SR&ED changes would officially become law. Under that scenario, companies would be able to apply the new SR&ED rules to their tax filings almost immediately upon enactment, with retroactive effect to the specified start date. In practice, that means many businesses could benefit for the 2025 tax year. For example, a company with a fiscal year ending December 31, 2025 would be able to claim the increased SR&ED credits and capital expenditures on its 2025 claim once the law is passed. Even companies with non-calendar year-ends could see a retroactive benefit; if set in motion, the changes might apply to companies with fiscal years ending in 2025. The Canada Revenue Agency would likely issue guidance and update SR&ED filing forms (such as Form T661 and Schedule T2SCH31) to reflect the new limits and categories when the law takes effect.

However, it’s worth noting that timing is contingent on the legislative agenda. Any delays in the fall session or other political priorities could impact when (or if) these proposals are adopted. There is also the possibility of further tweaks to the draft rules before finalization. Companies are advised to stay informed on the progress through the fall. If the measures pass in the fall 2025 budget bill and receive Royal Assent, the safest assumption is that the changes will apply going forward to all eligible R&D expenditures after December 16, 2024 (the original announcement date). We will then finally see the SR&ED program broadened as intended, with larger credit thresholds, inclusion of public companies, and capital spending eligibility, going into 2026 filings.

Conclusion

In summary, as of August 25, 2025, the SR&ED program changes announced in late 2024 remain proposals, not law. The government has introduced draft legislation and is consulting on it through September 12, 2025. Despite some early portrayals of the changes as a certainty, the reforms are still under review and could be revised or delayed. R&D managers and CFOs should thus continue to follow the current SR&ED rules, while keeping an eye on developments this fall.

If all goes as planned, the proposed enhancements, higher credit thresholds, broader eligibility (including public companies), and capital expenditure claims, will likely be folded into a fall 2025 budget bill and passed into law by the end of the year. That would allow companies to benefit from the new incentives for the 2025 tax year onwards, bolstering support for innovation investments in Canada. For now, the prudent approach is to stay informed, perhaps contribute feedback during the consultation, and be ready to adapt your SR&ED strategy pending the final outcome of these proposals.