The enhanced rate of 35% on qualified expenditure up to the expenditure limit is what makes SR&ED valuable to small and growing Canadian companies, and its refundability is what makes it a source of funding rather than a tax saving. The enhanced rate is for most Canadian-controlled private corporations (CCPCs) and, for tax years beginning after 15 December 2024, eligible Canadian public corporations. For most CCPCs at the enhanced rate, current expenditure is 100% refundable and capital expenditure 40% refundable, up to the limit. This page sets out the conditions.
What it is
| Element | Rule |
|---|---|
| Enhanced rate | 35% of qualified expenditures up to the expenditure limit |
| Expenditure limit | C$6 million a year, for tax years beginning after 15 December 2024 |
| Shared | Among associated corporations, allocated by agreement on Schedule 49 |
| Phase-out | Reduced where the associated group's taxable capital employed in Canada for the preceding year exceeds C$15 million, and nil at C$75 million. CCPCs may instead elect to calculate the expenditure limit using the same average gross revenue phase-out (C$15 million to C$75 million) that applies to eligible Canadian public corporations. |
| Refund on current expenditures | 100% of the enhanced credit for most CCPCs |
| Refund on capital expenditures | 40% of the enhanced credit |
| Above the limit | 15% credit, 40% refundable for a qualifying CCPC, otherwise non-refundable |
| Public corporations | Eligible Canadian public corporations receive the enhanced rate for tax years beginning after 15 December 2024 |
| Statute | Subsections 127(10.1) to (10.3), section 127.1 |
Who it applies to
CCPC status throughout the year. A CCPC is a private corporation resident in Canada that is not controlled by non-residents, public corporations or any combination of them, and whose shares are not listed. Control includes de facto control and any form of control in fact, so shareholder agreements and convertible instruments held by non-residents can matter. A company that ceases to be a CCPC during the year loses the enhanced rate for the year.
Refundable portion. The refundable portion of the credit depends on the corporation's status and its expenditure limit. For most CCPCs at the enhanced rate, current expenditure is 100% refundable and capital expenditure 40% refundable, up to the limit.
Associated corporations share one limit. Two CCPCs under common control, or a CCPC and its subsidiary, must agree how to split the C$6 million between them on Schedule 49, and the phase-out is measured on the group's combined taxable capital. Groups that grow by acquisition can find their limit shrinking as the acquired companies' capital is added, so the allocation should be revisited every year.
Eligible Canadian public corporations join the enhanced rate for tax years beginning after 15 December 2024 under the Budget 2025 measures, with the expenditure limit phased out where average gross revenue over the three preceding years is between C$15 million and C$75 million. For CCPCs the phase-out is based on taxable capital employed in Canada. CCPCs may instead elect to calculate the expenditure limit using the same average gross revenue phase-out (C$15 million to C$75 million) that applies to eligible Canadian public corporations.
How it works
- Confirm CCPC status for the whole year and identify the associated group.
- Compute the expenditure limit: start at C$6 million, reduce for the group's prior-year taxable capital between the thresholds, allocate among associated corporations on Schedule 49.
- Apply 35% to qualified expenditures up to the allocated limit and 15% to the excess.
- Determine the refundable portion under section 127.1. It depends on the corporation's status and its expenditure limit: for most CCPCs, 100% of the enhanced credit on current expenditures and 40% of the enhanced credit on capital expenditures, up to the limit.
- Apply the balance against Part I tax, then carry back 3 years or forward 20 years.
- Reduce next year's SR&ED pool by the credit claimed.
Worked example
Illustrative example. Bluenose Biotech Inc., a hypothetical CCPC with no associated corporations, prior-year taxable capital of C$5 million and no taxable income, has qualified current expenditures of C$7,000,000 and qualified capital expenditures of C$500,000 for a tax year beginning in 2026.
| Step | Amount |
|---|---|
| Expenditure limit (taxable capital below C$15 million) | C$6,000,000 |
| Enhanced credit: 35% of C$6,000,000 | C$2,100,000 |
| Of which on capital expenditures: 35% of C$500,000 | C$175,000 |
| Basic credit: 15% of the excess C$1,500,000 | C$225,000 |
| Refund: 100% of enhanced on current (C$1,925,000) plus 40% of enhanced on capital (C$70,000) plus 40% of basic (C$90,000) | C$2,085,000 |
| Non-refundable credit carried forward | C$240,000 |
Bluenose receives C$2,085,000 on assessment. Had its taxable capital been C$45 million, the expenditure limit would have been halved to C$3 million, and had a non-resident fund taken control in the year, the whole claim would have earned 15% with no refund.
Common questions
We raised venture capital from US investors. Are we still a CCPC? Only if non-residents and public corporations do not, alone or together, control the company. Take advice before the round closes.
Does the C$6 million limit apply per company? Per associated group, allocated among the members.
Is the refund taxable? No, but the credit reduces the following year's SR&ED pool.
What counts as taxable capital employed in Canada? Broadly, the corporation's shareholders' equity, retained earnings, loans and advances, less certain investments, as computed for the former large corporations tax; the prior year's figure is used.
How quickly is the refund paid? Within the CRA's service standard for refundable claims where the claim is accepted as filed; see how to claim.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.