Making SR&ED Work: Commercialization, IP, and Growth

The Scientific Research & Experimental Development (SR&ED) tax credit is by far the biggest innovation incentive in Canada. In fact, at nearly $4 billion annually, it’s nearly 10x larger than any other innovation funding program.

So naturally, Canadian companies in the innovation economy care a lot about SR&ED. CEOs have gripes, they have strong feelings about how it can be improved, and they know vividly how important this tax credit is for innovation and research commercialization.

In CCI’s 2025 pre-budget submission to the federal government, our main ask was simple: to put innovators first and implement the 2024 changes to SR&ED.

Canada’s innovation economy is brimming with potential, but outdated frameworks continue to hold back our ability to compete globally. SR&ED is a prime example of this. At nearly $4 billion annually, nobody can say we’re not spending enough money through this tax credit. But for too long, it has failed to deliver the outcomes Canada needs.

CCI has consistently called for a modernized SR&ED program that is simpler, fairer, and more focused on outcomes. Last year, we published *Getting Results: Cost-Neutral Steps Towards a 21st Century SR&ED Tax Credit*, which laid out a blueprint for reform. And, in our 2025 Pre-Budget Submission to the Standing Committee on Finance and Finance Canada, we doubled down on the need to ensure SR&ED supports commercialization, intellectual property retention, and Canadian-controlled firms.

Progress in the Fall Economic Statement

It was encouraging to see several of CCI’s long-standing recommendations reflected in the 2024 Fall Economic Statement and Finance Canada’s subsequent consultation on draft legislation. These include:

• Increasing the SR&ED expenditure limit for Canadian-controlled private corporations (CCPCs) from $3 million to $4.5 million;
• Raising the phase-out threshold for taxable capital from $10–$50 million to $15–$75 million;
• Allowing firms to elect gross revenue as the basis for phase-out, rather than taxable capital; and
• Expanding eligibility to include Canadian public corporations.

These changes are positive and respond directly to issues innovators have raised for years. They demonstrate that Ottawa recognizes the urgent need to modernize the framework. But as important as these updates are, they cannot be the final word on reform.

That’s why CCI recently joined with leading Canadian companies, business associations, and innovation sector leaders in signing a joint letter to Finance Minister François-Philippe Champagne. The letter urged the government to immediately enact these proposed enhancements without delay in the 2025 Fall Budget, emphasizing the need for certainty, stability, and capital co-investment to strengthen Canada’s innovation ecosystem.

What Still Needs to Be Done

Despite progress, the SR&ED program continues to subsidize foreign subsidiaries and entrenched incumbents while Canadian scale-ups struggle to access meaningful support. To build a program that truly strengthens Canada’s innovation economy, more must be done.

In our Pre-Budget Submissions, CCI has called for:

• Capping enhanced credits to avoid subsidizing “zombie firms” that do not contribute to long-term growth;
• Increasing program transparency and establishing independent evaluation metrics to measure economic impact;
• Complementing SR&ED with an Innovation Box — a preferential tax rate on profits derived from Canadian-developed IP, which would incentivize firms to retain, license, and commercialize their intangible assets here in Canada.

To get an idea of what these changes would mean in the real world, I emailed Colin Ryan, COO & CFO of Solace Power, a company that leverages SR&ED tax credits.

Colin Ryan said, “Increasing the SR&ED expenditure limit would be a constructive move, directing more support to Canadian companies working to turn R&D into economic impact. Firms like ours often hit the ceiling just as we shift from pure R&D towards commercialization—exactly when continued support matters most. Any thresholds on enhanced credits should recognize the longer development cycles of sectors like deeptech and hardtech, and compliance should remain practical—protecting proprietary IP while focusing on program outcomes."

And Ronen Benin, CEO of Zero To One Strategic, told me: “SR&ED reform isn’t just about adjusting thresholds, it’s about making sure Canada actually sees a return on investment in innovation. We need a program that helps firms build and own the IP that drives long-term economic growth.”

The Path Ahead

Canada is not short on innovative talent or entrepreneurial ambition. But without a 21st-century SR&ED program, we will continue to fall behind global competitors who are reshaping their tax and innovation frameworks to reward commercialization and sovereignty in the knowledge economy.

SR&ED has the potential to be a cornerstone of Canada’s economic strategy, but only if it is reformed with a clear focus on outcomes. With Budget 2025 on the horizon, the federal government has an opportunity to finish the job. The right reforms will ensure taxpayer dollars build Canadian-owned intellectual property, support scale-ups, and deliver lasting prosperity for the next generation.

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