If you’re building a startup in Canada, you’ve probably heard of the Scientific Research & Experimental Development (SR&ED) tax credit Canada program. It’s the largest federal program for business R&D, putting billions of dollars back into the hands of innovators every year. Now, proposed changes to SR&ED could make it even more valuable, especially for Canadian startups investing in hardware, medical technology, clean technology, and advanced manufacturing.
Here’s what’s changing, why it matters, and how founders can prepare.
"The SR&ED program has been around since 1986, making it one of the oldest and most generous R&D tax credit programs in the world. Today, it delivers approximately $4 billion in incentives annually to Canadian businesses.
What is the SR&ED tax credit Canada program?
The SR&ED tax credit is a federal incentive program that refunds a portion of your research and development (R&D) expenses. Eligible costs can include salaries, contractors, materials, overhead and, in some cases, equipment.
For early-stage startups, this can mean tens of thousands of non-dilutive funding dollars through SR&ED Investment Tax Credits (ITCs), which don’t require giving up equity.
What’s changing in 2025?
The federal government has introduced draft reforms to modernize the SR&ED program.
Here are the biggest updates founders should know about:
Capital expenditures reinstated
Companies would once again be able to claim spending on R&D equipment like robotics arms, testing rigs, and microscopes. This is huge for hardware-intensive startups.
Public companies included in the enhanced rate
Startups that go public would remain eligible for the 35% refundable (i.e., cash equivalent) SR&ED ITC, removing a major barrier to scaling through public markets.
Higher thresholds, more extended eligibility
Proposed changes would let companies claim more and remain in the enhanced category for longer, meaning an extended runway during critical growth years.
Why this matters for Canadian startups
These reforms to the SR&ED tax credit Canada program aren’t just policy tweaks; they could change how startups grow and scale in the country.
For hardtech and medtech startups → Equipment costs can now be partly refunded, reducing the burden of capital-heavy R&D.
For scaling companies → Extended eligibility helps you avoid the funding cliff that often hits during growth.
For future public companies → You can raise public capital without losing SR&ED support, keeping R&D funded.
A balanced perspective: what’s not included
While the proposed reforms are encouraging, experts note that they don’t solve every challenge:
No patent box regime (yet): Many in Canada’s tech ecosystem want stronger IP protections to prevent Canadian intellectual property from leaving the country. This wasn’t included in the draft changes.
Timing uncertainty: Parliament won’t debate the legislation until mid-September, so it’s not guaranteed to pass quickly.
Productivity puzzle remains: SR&ED helps, but Canada’s lagging productivity also depends on AI adoption, competition policy, and global investment.
By maintaining a balanced perspective, founders can remain optimistic yet realistic.
What should founders do now?
Here are practical steps to prepare:
Track capital equipment purchases — these may soon be eligible for claim again.
Consult with your accountant early — ask how the proposed changes may impact your subsequent SR&ED claim.
Plan for fiscal 2025 — the reforms could apply retroactively to this year’s expenses.
Leverage your incubator or accelerator — programs like North Forge can help maximize non-dilutive funding and pair it with mentorship, IP support, and connections to investors.
Final word
The proposed SR&ED tax credit changes could be a turning point for Canadian startups, putting more fuel behind your research, your team, and your ability to compete on a global stage. At North Forge, we believe every founder deserves the chance to scale without leaving Canada. If you’re ready to turn R&D into real-world impact, now is the time. You can also learn more about SR&ED here.
Turn your R&D into tangible results. Apply to North Forge's programming today and learn more about funding, mentorship, and the network that can help you scale faster.
FAQ: SR&ED Tax Credit in Canada
Can Canadian startups claim SR&ED?
Yes. Both private and public Canadian companies are eligible. With the proposed reforms, public companies may soon qualify for the enhanced 35% rate.
What expenses qualify under SR&ED?
Eligible costs include salaries, contractors, materials, and, under the draft reforms, capital equipment used for research and development (R&D).
When will the changes take effect?
If passed, the new rules could apply retroactively to fiscal years ending in 2025.
