Canada Updates R&D Rules to Bridge Deep Tech 'Valley of Death'

The primary challenge for "tough tech"—including clean tech and quantum computing—is the gap between initial scientific innovation and commercial viability. According to BetaKit, venture capital typically prioritizes speed and risk reduction, which conflicts with the long timelines required to turn new science into market-ready products.

To address this, Canada has implemented changes to its Scientific Research and Experimental Development (SR&ED) program via Bill C-15, federal budget legislation that became law in March. As reported by BetaKit, the new rules bring back eligibility for capital expenditures on qualifying property purchased starting Dec. 16, 2024. This allows companies to claim costs for the equipment and infrastructure essential for physical R&D, moving beyond the previous limitations that primarily covered wages and materials.

The government also doubled the annual spending cap for the enhanced refundable credit, raising it from $3 million to $6 million. At a 35-percent rate, this increases the maximum federal refund from $1.05 million to $2.1 million. Additionally, eligible Canadian public companies can now access this enhanced credit.

Paul Davenport, head of content at the R&D tax credit platform Boast, noted that while SR&ED does not replace grants or investors, it provides non-dilutive capital that can fund subsequent technical milestones. Davenport cautioned that eligibility is not automatic and depends on how equipment is used and tied to research. He suggested companies review specialized equipment and prototyping tools acquired within the last 12 to 18 months to determine if they qualify under the new rules.