SR&ED tax credit in 2026: What your SME needs to know before missing out

The Scientific Research and Experimental Development (SR&ED) tax credit allows Canadian businesses to recover between 15% and 35% of their eligible R&D expenditures at the federal level and additional credits at the provincial level, which vary by province. For Canadian-controlled private corporations (CCPCs), the vast majority of which are SMEs, part of the credit is refundable, even in a loss situation.

The program underwent changes in 2025-2026. Here’s what you need to know.

1. How does the SR&ED credit work?

The SR&ED program is administered by the Canada Revenue Agency (CRA). It provides a tax credit on expenditures incurred for scientific research and experimental development carried out in Canada.

The four-step process:

• You carry out eligible R&D activities
• You document these activities and the associated expenses
• You submit a request to the CRA with your tax return
• The CRA processes your application and issues a credit or refund
• A credit is also issued by the provincial government based on eligibility criteria

2. SR&ED credit rates in 2026

At the federal level, the SR&ED credit remains unchanged in its structure and varies according to the type of corporation:

• CCPC (Canadian-controlled Private Corporations): 35% credit on the first $6 million of eligible expenses, including a portion refundable based on the previous year’s taxable income. The limit has been increased from 3M to 6M for taxation years beginning after December 16, 2024.
• Other Canadian corporations : 15% credit, non-refundable, deferrable for 20 years
• Eligible capital expenditures again : reimbursable up to 40% according to the criteria
• Add a part on indirect expenses (Proxy method): which adds 35% or 15% (depending on the type of company) of 55% of salaries.

Quebec component (Revenu Québec) — major change underway

On March 25, 2025, Quebec’s Minister of Finance announced the elimination of the provincial SR&ED credit and its replacement with a new credit: the CRIC (Research, Innovation and Commercialization Tax Credit).

Transition rules:

• For corporate taxation years that began on or before March 25, 2025 : The former provincial SR&ED credit still applies. Filing deadline under the abolished credit: September 25, 2026.
• For corporate taxation years that began after March 25, 2025 : the new LICC applies.

Former Quebec SR&ED credit (still claimable for qualifying periods):

• Base Rate: 30% refundable on eligible R&D salaries
• Outsourcing costs: previously 80% eligible for universities and CCTTs, 50% for contract research organizations.

New RCIC (replaces 4 provincial R&D credits, including provincial SR&ED):

• 50% standardized subcontracting costs, regardless of the type of subcontractor
• Capital expenditures now eligible at the Quebec level: equipment used for R&D and pre-commercialization. Good news for manufacturers who are investing in new production cells or test benches.
• Expanded scope to include pre-commercialization, opening the door to activities that were previously excluded from the provincial sector.

3. Why the deadline deserves your attention

In the shops I visit, I regularly see the same scenario: a manufacturing SME has done experimental development — modifying a process to reduce a rejection rate, developing a new jig, testing a new alloy — without ever claiming credit. Often because no one in the company had time to document the work, or because it was judged that “it was not really R&D”.

With a combined federal and provincial rate of up to 60 to 65 per cent of eligible wages for a Quebec SME, a project costing $250,000 in engineering salaries can represent more than $150,000 in returns. Over three fiscal years that are still eligible, this is rarely negligible.

The September 25, 2026 window is the last opportunity to recover these amounts under the old regime, which was more predictable and better understood by advisors and Revenu Québec.

4. How to know if your business is affected

An analysis is worthwhile if you recognize your company in one or more of these situations:

• You have modified a manufacturing process to solve a technical problem for which the solution was not obvious
• Your engineering or production teams have done documented tests (successful or not) in 2024 or early 2025
• You have developed a tailor-made product or equipment with an element of technical uncertainty
• You have claimed the SR&ED credit in the past but have stopped.

The work does not have to be successful to be eligible. On the contrary: an unsuccessful attempt that has generated new technical knowledge is exactly what the program aims to recognize.

Conclusion

The SR&ED program remains one of the most advantageous tax programs for Canadian SMEs. It is underused due to a lack of information and the (often erroneous) perception that “we don’t really do R&D”. In 2025, Quebec’s Research, Innovation and Commercialization Tax Credit (IRCC) program was modified and expanded for pre-commercialization activities, largely benefiting businesses in Quebec.

Progrès Conseils has been assisting manufacturing SMEs in Quebec and Ontario since 2003 in the preparation of their SR&ED claims. With the deadline of September 25, 2026 approaching, I am devoting some of my time to Spot diagnostics to quickly identify if a retroactive claim is possible — and if it’s worth the cost.