It is obvious that the Canadian business climate is going through some turbulent times right now. The tariffs being thrown at us by the USA and China have serious repercussions to manufacturing and other industries. These worries are being compounded by the uncertainties inherent with a federal election and the unknowns of what the new leadership will bring to Canadian businesses.
In times like these, many business leaders are wondering how to weather these storms.
One key method to insulate yourself from many of these problems is to invest in R&D. In times of high tariffs, companies should invest in research and development to build resilience and maintain competitiveness. Tariffs increase the cost of imported goods and materials, squeezing profit margins and limiting access to global suppliers. By investing in R&D, companies can innovate to reduce dependency on foreign inputs, develop cost-effective alternatives, and create differentiated products that justify higher prices. Additionally, R&D can lead to process improvements that enhance efficiency and offset increased costs. In a volatile trade environment, innovation becomes a strategic tool not just for survival, but for long-term growth and market leadership.
Where do I get the funds to invest in R&D?
The Scientific Research and Experimental Development (SR&ED) tax incentive program remains one of Canada’s most important levers for encouraging private sector innovation. Supporting over 22,000 businesses annually, SR&ED provides refundable and non-refundable tax credits to businesses conducting eligible R&D. With the 2025 federal election on the horizon, the fate of SR&ED will be shaped significantly by the next government’s innovation priorities. Recent updates from major political parties—particularly the Liberals under Mark Carney, the Conservatives under Pierre Poilievre, and the NDP under Jagmeet Singh—signal potentially significant changes to Canada’s innovation landscape.
Recent SR&ED Reforms
In December 2024, the Liberal government introduced key reforms aimed at modernizing the SR&ED program. These include:
- Increasing the expenditure limit for the enhanced 35% tax credit from $3 million to $4.5 million.
- Raising the taxable capital phase-out thresholds from $10–50 million to $15–75 million.
- Extending eligibility for the enhanced refundable tax credit to Canadian public corporations.
- Reintroducing eligibility of capital expenditures for both tax deduction and credit purposes.
These measures, effective from December 16, 2024, are intended to make the SR&ED program more responsive to contemporary innovation needs. However, the political platforms of each party suggest diverging strategies on whether this approach is sufficient—or even appropriate.
Liberal Party (Mark Carney): Strategic Expansion of Innovation Infrastructure
Mark Carney’s Liberal Party platform extends beyond tweaking SR&ED. It includes the creation of the Canada Advanced Research Projects Agency (CARPA), modeled after the U.S. DARPA, with an initial $2 billion investment. CARPA would focus on high-risk, high-reward projects, complementing the SR&ED program by supporting early-stage, transformative research.
Additionally, Carney proposes a $75 million annual Commercialization Fund to help colleges and universities move academic breakthroughs into the market—an area historically underdeveloped in Canada’s innovation pipeline. These initiatives aim to fill gaps in the current system where SR&ED is seen as more reactive than proactive and largely company-driven rather than discovery-driven.
Carney’s platform also emphasizes reducing red tape within SR&ED, promising to better align eligible expenses with modern R&D and innovation activities. This could mean expanded definitions for software development, green tech, and AI-related expenditures—areas that many current claimants argue are undervalued under the existing framework.
Taken together, the Liberals’ approach positions SR&ED as part of a broader innovation ecosystem—complemented by direct investment agencies and commercialization supports—rather than the sole driver of research incentives.
Conservative Party (Pierre Poilievre): Simplicity, Efficiency, and Private-Sector Leadership
Pierre Poilievre and the Conservative Party propose a more hands-off, efficiency-focused model for innovation. Poilievre emphasizes tax code reform over direct subsidies, aiming to reduce government interference and allow market forces to guide R&D investments. While not opposed to SR&ED outright, Poilievre proposes a comprehensive review of all innovation programs, including SR&ED, to eliminate duplication and streamline operations.
His platform reflects a belief that Canada’s innovation problem is not a lack of funding but a lack of return on investment—suggesting that bureaucratic inefficiencies and overly complicated access points have diluted the effectiveness of existing programs. If elected, Poilievre may shift SR&ED toward broader eligibility criteria tied to productivity improvements rather than narrowly defined scientific research.
NDP (Jagmeet Singh): Focused Support through Sectoral Investment
While Jagmeet Singh and the New Democratic Party (NDP) do not explicitly target SR&ED in their platform, their focus on supporting Canadian-made electric vehicles (EVs) implies a targeted innovation strategy. Policies such as procurement incentives, green infrastructure investment, and research partnerships in the EV sector suggest the NDP would favour direct investment in sector-specific R&D rather than broad-based programs like SR&ED.
However, it’s plausible that an NDP government would enhance SR&ED claims related to green technologies and climate-aligned industries. The party’s consistent push for environmentally conscious economic policies aligns with strengthening SR&ED incentives in renewable energy, battery innovation, and low-emission manufacturing.
Conclusion
The direction of the SR&ED program—and Canada’s broader innovation agenda—will be significantly shaped by the outcome of the 2025 federal election. Mark Carney’s Liberals offer the most ambitious plan, blending traditional tax incentives with DARPA-style project funding and commercialization support. Pierre Poilievre’s Conservatives prioritize tax simplification and market-driven innovation, which may shrink or reconfigure SR&ED. The NDP, while less focused on SR&ED, proposes a climate-first industrial policy that could reshape eligibility and funding priorities.
Ultimately, SR&ED’s success will depend not just on funding levels or tax rates, but on how well it reflects the realities of today’s innovators—from software startups to clean energy labs. The 2025 election presents a critical opportunity to align Canada’s flagship R&D program with the demands of a fast-changing global economy.
In the meantime, Canada desperately needs to innovate and diversify. We need to expand from a resource based economy and develop new manufacturing capabilities and technologies to become more value added. We need to develop new technologies, find new markets, and become a leader in the world, instead of always trying to get out of the shadow of much larger countries that only have their own interests in mind. The way to do this is much more investments in research and development.
Written By: Phil Winter (P.Eng, M.Sc)
