Building Stronger SR&ED Claims Through Year-Round Documentation 

The Puzzle of Non-Refundable SR&ED Tax Credits

Most Canadian businesses are familiar with the cash refunds available through the federal SR&ED program, but fewer understand how provincial research and development tax credits fit into the picture. In Ontario, for example, companies may qualify for both the Ontario Innovation Tax Credit (OITC), which is refundable, and the Ontario Research and Development Tax Credit (ORDTC), which is non-refundable.

The distinction is important.

Refundable tax credits can generate a cash payment even when a company has little or no taxable income. Non-refundable credits, on the other hand, reduce corporate income tax payable once a company becomes profitable. If they cannot be used immediately, they can generally be carried back up to three years or carried forward for up to twenty years.

An interesting feature of the SR&ED program is that provincial non-refundable credits reduce the amount of federal SR&ED credit a company can claim. As a result, companies that are not currently paying income tax may sometimes receive a larger immediate cash refund by waiving the provincial non-refundable credit. A waiver must generally be filed within six months of the corporation's year-end, and the decision should be made carefully based on the company's current cash needs and expectations for future profitability.

Consider the following example for a corporation with no taxable income and $100,000 of eligible SR&ED expenditures.

Option 1: Claim the non-refundable provincial credit

• Provincial refundable credit: $8,000
• Provincial non-refundable credit: $3,220
• Federal refundable credit: $31,073

Total tax credits: $42,293

Immediate cash refund: $39,073

Option 2: Waive the non-refundable provincial credit

• Provincial refundable credit: $8,000
• Federal refundable credit: $32,200

Total tax credits: $40,200

‍Immediate cash refund: $40,200

In the first scenario, the company receives a higher overall tax benefit, but $3,220 is available only as a future reduction of Ontario corporate income tax. In the second scenario, the total benefit is lower, but every dollar is received as an immediate cash refund.

There is no universal "right" choice.

Conclusion

For growing businesses that expect to become profitable in the near future, retaining the non-refundable credit may provide greater long-term value. For companies focused on maximizing cash flow today, waiving the credit can often be the better strategy. Evaluating this trade-off is an important part of SR&ED planning, and ensuring the appropriate elections are made before the filing deadline can have a meaningful impact on the value a business ultimately receives from the program.

Got questions? Always happy to connect!

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‍‍In a recent post I talked about what actually matters in the recent SR&ED changes.There’s a lot in there and much of it is genuinely meaningful for founders.

There's also one major change that we've had a lot of questions about, not surprisingly. There is confusion, interest and concern around it and that deserves a closer look.The new Pre-Claim Approval (PCA) process is getting positioned as a win for founders, more certainty, faster timelines, less risk.

On the surface, that sounds great. We're not sure it will play out that way for most companies.

‍What Pre-Claim Approval Is (Without the Spin)

‍At a high level, PCA lets you submit your planned R&D work to the CRA before you do it and get a decision on whether it qualifies.If you’re approved:

• You get a faster review later
• You have some upfront clarity
• You can reference that approval for future claims

It’s optional, nothing changes if you ignore it.But we argue that how it's described isn't the key here, it’s how it actually changes behaviour.

‍What the PCA Actually Introduces

‍This is the part people are dancing around. You are:

• Writing a technical narrative upfront
• Defining your uncertainties in advance
• (potentially), sitting with a CRA reviewer to walk through your work

That’s not just “guidance.” It’s a front-loaded eligibility review, now happening earlier than it used to.To be fair, this is solving a real frustration. SR&ED has always had a timing problem:

• You invest first
• You find out later if it qualifies (sometimes much later)
• You get reimbursed (ofter 18+ mths after the work is done)

The PCA flips that: “Tell us what you’re going to do, and we’ll tell you if it counts.”

We get it! If you’ve had a bad experience before, that’s appealing.

‍Where This (May) Break Down for Founders

1. You're Locking in Your Plan Too Early

‍R&D doesn’t always go to plan. In the real world it evolves, pivots and often fails in unexpected ways. When you define your work upfront, you’re:

• Creating a fixed narrative
• Increasing the risk of misalignment later
• Potentially needing to rework or re-justify

The system was designed to evaluate what actually happened. This moves you toward defending what you said would happen.

‍2. You Start Optimizing for Approval

‍Once founders know they’re being evaluated early, behaviour changes. We predict that we'll see:

• Safer project framing
• Less technical ambition
• Fewer edge cases

Not because the work is changing but because the needs to frame it might and therefore, the presentation changes. We'd argue that over time, this (might) quietly reduce the strength and size of claims.

‍3. It Adds Process at the Wrong Time

‍PCA requires a lot from a company, all before they've created real R&D output.

• Documentation
• Internal alignment
• Time with reviewers

For early and growth-stage teams, that’s backwards. Our advice is always to spend time and energy building, selling and networking. You should be spending that energy on building, not pre-justifying.

‍4. It (May Not) Remove as much Risk as Advertised

‍This is the important part. The PCA is meant to help assess technical eligibility. It does not fully protect your claim. You still may run into issues down the line with:

• Costs
• Execution differences
• Supporting documentation

What that really means is that you're not eliminating risk, you’re just shifting where it shows up.

‍Who This Might Work For

‍It's not all bad news! And of course with any new change, there will be a learning curve that we all will ride along together.We believe there are a few cases in which the PCA could make great sense:

• First-time claimants who want guardrails
• Teams with highly ambiguous work and no internal experience
• Companies that are extremely risk-averse

We support all of these types of clients often and in those situations, the PCA may prove very useful.We would just argue that this is not the profile of most scaling companies.Ultimately, I stand by our first post. The companies that will be able to maximize their SR&ED claims annually:

• Do real technical work under uncertainty
• Document it properly as they go (we can help with this!)
• Build a clear, defensible narrative, factoring in all of the evolutions, pivots and fails as noted above; often the strongest part of a SR&ED claim!

If you have questions about the PCA or are considering taking advantage of it for your business, we're happy to chat and help you determine if it might be the right fit for you.

Last week, Canada passed the most significant updates to the SR&ED program in over a decade. After years of advocacy from many groups and Canadian leaders, major reforms to Canada’s Scientific Research and Experimental Development (SR&ED) program take effect today.

You’ve likely already seen the headlines and all the "hot takes" but the real question is what these changes mean for how you build your company.

For years, SR&ED hasn’t kept pace with how modern companies operate. Limits didn’t move with inflation, capital-heavy innovation was at a disadvantage, and many companies outgrew the program earlier than they should have. What we’re seeing now is less about generosity and more about the government catching up.

Arguably the most active group in pushing for these updates is the Canadian Council of Innovators and as members of CCI, we’ve had a front-row seat to many of the conversations shaping these changes.

The direction is clear: this is about making SR&ED more relevant to how companies actually build today.

The Updates

On paper, the changes are straightforward:

• capital expenditures are eligible again,
• expenditure limits for CCPCs have doubled from $3M to $6M,
• taxable capital thresholds have expanded,
• and certain public companies can now access refundable credits (Canadian-listed firms, that are Canadian-controlled and their Canadian-based subsidiaries)

Individually, these look like incremental improvements. Taken together, they materially increase the amount of non-dilutive capital available to innovative companies.

For some businesses, refundable SR&ED can now reach over $2M annually. That’s no longer a marginal benefit, it’s meaningful runway.This shift also changes who benefits most. Bringing capital expenditures back into the program is particularly significant for companies investing heavily in infrastructure, equipment, or technical systems. Hardware, manufacturing, and deep tech businesses, historically disadvantaged under SR&ED, are now much better positioned to benefit. At the same time, higher limits and expanded eligibility mean the program extends further into the growth stage, and the belief that this is just for "early stage" companies can be rebutted.

I think these changes should change behaviour in material way.

The Mindset Shift

Historically, SR&ED has been treated by most companies as a retrospective exercise. You build, you document, and you file. You optimize around the edges.

We tell our customers (and have been for some time!) that this is an outdated and ineffective approach.  And now, when the program becomes this material, and when capital and scale are more meaningfully included, it starts to influence decisions upstream. Hiring plans, technical direction, capital allocation, and the timing of investment all become part of the equation. SR&ED moves from something you deal with after the fact to something you can design around and plan for in a strategic way.

New: The Pre Claim Approval Process

One area where we see a lot of optimism, and where we take a more cautious view, is in the new Pre-Claim Approval process (PCA). In theory, this offers certainty before work begins, along with faster processing and reduced audit risk. On the surface, that’s appealing. But innovation rarely follows a fixed path.

Projects evolve, scope shifts, and technical challenges change direction. Locking in assumptions early may limit flexibility later, whether that means under-claiming or constraining how work develops. Certainty has value, but in this context, it might come at a cost. For many companies, especially those iterating quickly, flexibility could bemore important.That doesn’t mean pre-claim approvals won’t have a place. It does mean they should be approached thoughtfully, not automatically and we will continue to watch this space.

Final Thoughts

Overall, the risk is that companies interpret these changes too narrowly. It’s easy to see this as simply “more funding” or a larger claim opportunity. In reality, the bigger shift is strategic.

SR&ED is no longer just about maximizing what you did, it’s increasingly about shaping what you choose to do.The companies that benefit most won’t be the ones that file the "best" claims. They’ll be the ones that plan more deliberately, align their technical and financial decisions earlier, and treat SR&ED as part of how they build, not just how they report.

I think we can all agree that the Canadian government has made it easier to fund innovation with these updates. This is a meaningful step forward but it doesn’t change the fundamentals. Building a great company still comes down to execution, judgment, and timing. These program improvements have been a long time coming and as CCI noted, "now the focus is on making sure it works in practice and continues to improve."

SR&ED is a more powerful tool than it was before. What matters is how you choose to use it.

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