Federal Budget 2025: Strengthening Innovation and Competitiveness

On November 4th, 2025, the Government of Canada released the 2025 Federal Budget with a strong focus on supporting Canadian research and innovation. The budget introduces major enhancements to the SR&ED tax incentive program, including restored eligibility for capital expenditures and expanded access to the enhanced refundable rate. It also renews vital support programs regarding exports and intellectual property and invests in sovereign AI infrastructure. 

The following article summarizes the most important updates and outlines the potential impact these measures may have on innovative Canadian R&D businesses in the years ahead. 

Major Updates to the SR&ED Tax Incentive Program 

A Higher Enhanced Rate Cap 

One of the most significant changes in Budget 2025 is an increase in the expenditure ceiling for the enhanced SR&ED tax credit. Companies will now be able to claim the 35% refundable credit on eligible R&D expenditures up to $6M, doubling the longstanding $3M threshold. 

The Fall 2024 proposal had suggested raising the limit to $4.5M, making this final increase more substantial than expected. The new ceiling provides growing firms with greater access to refundable support during critical development stages and is intended to strengthen cash flow and encourage sustained investment in Canadian R&D. 

The budget also confirmed that the enhanced SR&ED tax credit will now phase out for corporations that have taxable capital between $15M and $75M.   

Restored Capital Expenditure Eligibility 

The Fall 2024 proposal mentioned restoring the eligibility of capital expenditures under SR&ED, and Budget 2025 confirms this change. Companies can once again claim certain capital costs such as new or used depreciable property under both the income deduction and the investment tax credit. This update gives firms more flexibility to invest in equipment and infrastructure that directly support their R&D work. 

Expanded Access to Public Corporations 

Another major update concerns eligibility for the enhanced refundable rate. Historically, only 
Canadian-controlled private corporations could access the 35% credit. Budget 2025 confirms extending this enhanced rate to certain Canadian public corporations as well. This expansion would give larger R&D performers access to refundable support, helping them invest more consistently in Canadian innovation. 

Faster Claim Processing 

Budget 2025 also outlines the CRA’s plan to modernize how SR&ED claims are processed. Supported by analytics tools and AI-enabled systems, the agency aims to issue decisions and refunds faster and with greater consistency. These upgrades are intended to reduce the administrative burden for claimants, improve transparency during reviews, and avoid unnecessary audits for low-risk submissions.  

These SR&ED updates apply to fiscal years beginning after December 16, 2024. Internally, the CRA will begin operating under the new framework as of April 1, 2026. 

Extension of Key Intellectual Property Programs 

In addition to funding for R&D, Budget 2025 extends several important intellectual property initiatives, with all programs beginning their next phase in 2026–27. 

• ElevateIP will receive $84.4M over four years to help startups and businesses develop and implement IP strategies. 

• The Innovation Asset Collective (Patent Collective) will receive $22.5M over three years to continue supporting companies working in data-driven sectors. 

• NRC/IRAP’s IP Assist program will receive $75M over three years to provide direct IP advisory support to innovative firms. 

These measures aim to strengthen Canada’s IP capacity and ensure that companies can develop, protect, and leverage their intellectual property as they scale. 

Investment in Sovereign AI Infrastructure 

Budget 2025 also includes a major investment to strengthen Canada’s AI research and computing capacity, with over $925M allocated over five years to build large-scale sovereign AI infrastructure. For R&D companies, this can help address limited and costly access to advanced computing resources, enabling more secure and efficient deployment of AI for research and development. 

The government also intends to work with industry leaders to identify promising AI infrastructure projects and enable the Canada Infrastructure Bank to support these developments. This opens potential opportunities for organizations operating in AI, advanced computing, and related technologies. 

Renewed Export Support 

Budget 2025 expands Canada’s export support system by renewing the CanExport suite of programs and increasing long-term funding for firms pursuing global markets. With $68.5M committed over the next four years and $19.9M in ongoing annual funding, CanExport will continue helping SMEs, non-profits, innovators, and industry associations with a range of activities that support international market entry and expansion. This investment strengthens Canada’s Trade Diversification Strategy and helps companies reduce reliance on any single market. 

Building on this support, the budget also reinforces Canada’s ability to help businesses manage the trade pressures that directly affect export growth. The SME Export Readiness Initiative provides training and capacity building for firms with little exporting experience. The Large Enterprise Tariff Loan offers financial support to larger companies facing actual or potential tariff impacts. The Regional Tariff Response Initiative Grant has been renewed with up to $1 billion over three years to help firms affected by recent tariff challenges. Together, these measures reduce export barriers, stabilize supply chains, and help innovative and R&D-focused companies maintain access to the materials and markets they need to compete internationally. 

Final Thoughts 

Budget 2025 reflects a renewed federal commitment to innovation, easing financial pressure on R&D players while helping them expand globally and strengthen their computing and IP strategies. As with any major policy update, understanding how these changes apply to your specific situation will be important, especially for organizations preparing future SR&ED claims or adjusting their development and commercialization strategies. Please contact me at 1-800-500-7733, x 103 or chausmann@rdpartners.com if you have any questions or comments.