SR&ED in 2026: The $6 Million Limit and How Ontario Startups Can Claim More
Quick answer: Bill C-15, which became law on 26 March 2026, doubled the SR&ED expenditure limit for the 35% enhanced refundable credit from $3 million to $6 million, brought back capital expenditures, and opened the enhanced credit to eligible Canadian public companies. The changes apply to tax years starting on or after 16 December 2024. Canadian-controlled private corporations can now get up to $2.1 million a year in refundable federal credits, plus Ontario credits on top.
Key takeaways
- Qualifying CCPCs earn a 35% refundable federal credit on up to $6 million of eligible SR&ED spending a year.
- Spending above the limit earns a 15% non-refundable credit.
- Capital expenditures on equipment used for SR&ED are eligible again.
- Claims are due 18 months after your tax year-end, so 2025 year-ends can still benefit.
- Strong documentation — written as you go — is what makes a claim survive review.
What SR&ED is, in plain language
The Scientific Research and Experimental Development (SR&ED) program is Canada’s largest federal support for business innovation. It gives tax credits for work that tries to resolve technological uncertainty through a systematic investigation, aiming at a technological advancement. It isn’t limited to labs: software companies, manufacturers, food producers, engineering firms and agri-tech startups all claim it.
For a small Canadian-controlled private corporation (CCPC), the credit is refundable — the CRA pays it in cash even if the company has no taxable income. For an early-stage startup burning cash, that refund can extend runway by months.
What changed in 2026
The Budget 2025 Implementation Act, No. 1 (Bill C-15) received royal assent on 26 March 2026. It legislated the largest SR&ED expansion in decades.
| Feature | Before | Now (tax years starting on or after 16 Dec 2024) |
|---|---|---|
| Expenditure limit for 35% refundable credit (CCPCs) | $3 million | $6 million |
| Maximum refundable federal credit | $1.05 million | $2.1 million |
| Capital expenditures | Not eligible (since 2014) | Eligible again (equipment used at least 90% for SR&ED in Canada) |
| Phase-out of the expenditure limit | Based on taxable capital | Begins at $15 million of taxable capital, nil at $75 million; option to use gross revenue instead |
| Eligible Canadian public corporations | Not eligible for the enhanced credit | Eligible, with limit based on average gross revenue |
| Rate above the limit | 15% non-refundable | 15% non-refundable |
A few details are worth slowing down on:
- Capital expenditures — equipment and other depreciable property used at least 90% of the time for SR&ED in Canada over its useful life now qualifies. Buildings, land and intangibles do not. The credit on capital expenditures is refundable at a lower rate (up to 40%) than on current expenditures (up to 100%).
- The gross revenue option — growing companies with significant capital but modest revenue can elect to calculate the phase-out on gross revenue instead of taxable capital, which can preserve the enhanced limit.
- Timing — because the changes apply to tax years beginning on or after 16 December 2024, a company with a calendar year-end benefits from its 2025 tax year onward.
Does my work qualify?
The CRA asks five questions about each project:
- Was there a scientific or technological uncertainty — something you couldn’t resolve using standard practice or publicly available knowledge?
- Did you form hypotheses to reduce that uncertainty?
- Did you follow a systematic approach — experimentation, testing, analysis?
- Did the work aim for a scientific or technological advancement (not just a commercial or aesthetic improvement)?
- Did you keep records of the hypotheses, tests and results as you went?
Examples that often qualify
- Building a machine-learning pipeline where existing models couldn’t meet accuracy or latency constraints, requiring new architectures or training approaches.
- Developing a manufacturing process for a new material where standard parameters failed.
- Creating a software system to handle data volumes or concurrency that existing frameworks couldn’t support, with documented failed approaches.
- Reformulating a food product to extend shelf life without preservatives.
Examples that usually don’t
- Routine software development using well-known tools and methods.
- Market research, UI design for appearance, or style changes.
- Quality-control testing of normal production.
- Integrating off-the-shelf systems without technical uncertainty.
The line for software is the one most often argued. The question isn’t “was it hard?” but “was the difficulty a technological uncertainty that a competent developer couldn’t resolve with known methods?”
What you can claim
Eligible expenditures generally include:
- Salaries and wages of employees directly engaged in SR&ED (including owner-managers, subject to limits for specified employees).
- Materials consumed or transformed in SR&ED.
- Contracts — 80% of arm’s-length contract payments for SR&ED performed in Canada on your behalf.
- Overhead — either actual overhead, or the simpler proxy method, which adds a percentage of eligible salaries.
- Capital expenditures on qualifying equipment (newly eligible again).
Expenditures must generally be for work done in Canada.
Watch out for
- Government assistance (grants such as IRAP) reduces your eligible expenditures.
- Owner salaries vs. dividends: dividends aren’t SR&ED salary. If an owner-developer is paid entirely in dividends, the company may lose eligible expenditures. This is one of the most common planning misses.
- Associated companies share one expenditure limit.
Stack Ontario credits on top
Ontario corporations can add provincial credits to the federal SR&ED credit, including the Ontario Innovation Tax Credit (refundable, for qualifying corporations) and the Ontario Research and Development Tax Credit (non-refundable). The provincial credits reduce the expenditure base for the federal calculation, so the sequence of calculation matters. Ontario’s limits and rates are set separately from the federal ones — confirm the current figures before you estimate your claim.
A worked example
A Toronto software CCPC with a calendar year-end spends the following on qualifying work in 2025:
| Expenditure | Amount |
|---|---|
| Developer salaries directly on SR&ED | $900,000 |
| Proxy overhead (on eligible salaries) | Added per CRA proxy rules |
| Arm’s-length contractor (80% eligible of $200,000) | $160,000 |
| Test equipment used 100% for SR&ED | $80,000 |
Under the old rules, the company was well below the 3millionlimitanyway, sotheexpansiondoesn′tchangeitsrate—butthe * *80,000 of test equipment** is now eligible again, adding a partly refundable credit that wasn’t available before. A larger company spending $5 million would see the biggest difference: roughly 2millionofspendingmovesfromthe15400,000 more in cash**.
How to file a claim
- Identify projects at the start of the year, not at year-end.
- Document contemporaneously — hypotheses, test plans, results, failed attempts, version-control logs, lab notes, meeting notes.
- Track time by project and by employee.
- File Form T661 (SR&ED expenditures claim) and Schedule 31 (investment tax credit) with your T2 return, plus Ontario schedules.
- Meet the deadline: the claim must be filed within 18 months of the end of the tax year. Miss it, and the credit is lost permanently.
- Be ready for review: the CRA may ask a research and technology advisor and a financial reviewer to examine the claim.
Choosing who prepares your claim
Many SR&ED firms charge a contingency fee — a percentage of the credit. That can be fair, but read the agreement: what happens if the CRA reduces the claim after you’ve paid the fee? Who attends the review? Is the T2 and financial-statement side of the claim handled properly? A claim is a technical narrative and a tax filing; both halves must hold up.
The bigger picture for startups
Combined with the refundable nature of the credit, the $6 million limit makes Canada one of the more generous places in the world to do R&D as a private company. But SR&ED is a reimbursement, not upfront funding: you spend first and get the refund after filing and assessment. Plan your cash flow, consider SR&ED financing (lenders who advance against expected credits) if runway is tight, and keep your books clean so the claim can be filed promptly after year-end.
Frequently asked questions
For CCPCs, $6 million of qualifying expenditures earn the 35% enhanced refundable credit, for tax years beginning on or after 16 December 2024. The limit is phased out between $15 million and $75 million of taxable capital, with an option to use gross revenue instead.
Yes. Bill C-15 reinstated capital expenditures on depreciable property used at least 90% of the time for SR&ED in Canada. Buildings, land and intangibles are excluded.
You must file Form T661 and the related schedules within 18 months of the end of the tax year in which the expenses were incurred.
Yes, if the work resolved technological uncertainty through systematic investigation and aimed at a technological advancement. Routine development with known methods doesn’t qualify.
Dividends are not eligible salary. Owner-managers who do SR&ED work often benefit from taking at least part of their pay as salary to support the claim.
Yes. Government assistance, such as an IRAP grant, generally reduces the eligible expenditure base.
Make the most of the new SR&ED rules
Solstice Partners helps Ontario startups and innovative businesses structure owner pay, track eligible costs and file accurate T2 returns that support their SR&ED claims. Talk to us about corporate tax or book a consultation.
Sources
- Canada Revenue Agency — Scientific Research and Experimental Development tax incentive program
- Canada Revenue Agency — What SR&ED work is eligible
- Welch LLP — 2026 changes in SR&ED (Bill C-15)
- Canada Revenue Agency — Provincial and territorial R&D tax credits
This article is general information, not tax advice for your situation. SR&ED eligibility depends on the facts of each project; confirm details before filing.
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