Bryan Watson is the managing director of CleanTech North and a Canadian innovation veteran who helps companies unlock capital through SR&ED and Clean Economy ITC financing. He is the former executive director of NACO and co-chair of CPA Canada’s Clean Economy ITC working group.
For months, many have spoken about the budget as if it were already in force. It wasn’t. Until the budget received royal assent last week, none of it was legislated—meaning only now can companies count on the policies that were announced. For innovation and clean economies, the budget bolsters two of the country’s most important non-dilutive funding mechanisms: Scientific Research and Experimental Development (SR&ED) and the Clean Economy Investment Tax Credits (ITCs).
The impact? More potential funding for innovation and the adoption and manufacturing of clean technologies. Taken together, SR&ED and the Clean Economy ITCs are increasingly shaping how capital flows through Canada’s innovation and industrial economy, accelerating productivity by opening capital stack design options for companies.
In that sense, the real impact is not just the credits themselves—it’s how they unlock capital and cash flow for companies and projects across the country.
Here’s a breakdown.
SR&ED: A long-overdue evolution
The changes to the SR&ED program represent one of the most consequential shifts in decades. The changes include:
- Capital Expenditures: Eligible SR&ED capital expenditures are restored to both the deduction and investment tax credit framework, applicable to property acquired (or lease costs incurred) on or after Dec. 16, 2024.
- Public Companies: Certain eligible Canadian public corporations (ECPCs) are brought within the scope of the enhanced, 35-percent refundable credit, subject to a phase-out based on average gross revenue thresholds for ECPCs and their consolidated groups.
- Expenditure Limit : The ceiling for the enhanced 35-percent SR&ED credit is raised from $3 million to $6 million, effective for taxation years beginning on or after Dec. 16, 2024.
- Extended Phase-Out: The enhanced credit is phased out over a much wider range, starting above $15 million of prior-year taxable capital employed in Canada (or, at the corporation’s election, average annual gross revenue over the preceding three fiscal years), and ending at $75 million—up from the previous $10 million to $50 million range.
For founders and CFOs of Canadian companies, this enhances their ability to access more refundable (read cash back) credits for more types of eligible expenses, into later stages of growth, no matter their source of capital—public or private.
What’s more, the savvy reader of the full budget text will note the date that these changes were made effective by: Dec. 16, 2024. That means two things.
First, companies will need to review their historic claims and spending to see if they can submit amended claims that include any of these changes;
Second, you can assume that the Canada Revenue Agency’s SR&ED department is staring down a tidal wave of new work, revising old claims—much more than in a “normal” year.
While persistent administrative friction within the program remains and will likely be exacerbated by many amended filings, driving an even greater need for SR&ED financing from firms like Easly, in the long run, these changes mean more companies can count on more money from the SR&ED program.
From here, we hope to see additional expenses added as eligible to be included as SR&ED-able, like the costs associated with intellectual property (IP) protection, but we will have to wait for future legislation and likely budgets for that.
Clean economy tax credits
Beyond SR&ED, the Clean Economy Investment Tax Credits (ITCs) represent one of the most ambitious industrial policies Canada has introduced in decades, spanning clean technology, clean hydrogen, CCUS, clean technology manufacturing, and now clean electricity.
With the official passage of the federal budget, we see the introduction and legislation of the Clean Electricity Tax Credit and a number of practical fixes for the existing credits legislated and clarified, including:
- Clean Technology ITC:
- Waste Biomass: Expanded to include energy systems using waste biomass (retroactive to Nov. 21, 2023).
- Small Nuclear: SMR and small nuclear definitions broadened (retroactive to Mar. 28, 2023).
- Clean Technology Manufacturing ITC:
- Critical Minerals: Five added (antimony, indium, gallium, germanium, scandium) for the 30-percent credit (Nov. 4, 2025).
- Polymetallic Projects: Eligibility confirmed; “all or substantially all” replaced with a “primarily” output test (retroactive to Jan. 1, 2024).
- Clean Electricity ITC: Now finally legislated, an exception was also made for this credit for Canada Growth Fund and Canada Infrastructure Bank funding, so their funding no longer reduces eligible credits like normal government assistance (effective Nov. 4, 2025).
- CCUS ITC: Full rates extended to 2035, with reduced rates through 2040 (sunset unchanged).
- Clean Hydrogen ITC: Methane pyrolysis added as an eligible pathway (effective Dec. 16, 2024).
That is a lot to digest, but the summary is that all these changes help calibrate the Clean Economy Tax Credits with the reality of on-the-ground technologies and projects. Overall, I believe the changes will help drive the growth of Canadian clean technology companies and the adoption of their technologies across the economy, from mining to making buildings more efficient.
From incentives to capital strategy
The real story isn’t just better incentives—it’s a shift in how Canadian companies finance projects, infrastructure, and growth. They are increasingly core components of the capital stack, influencing how projects are structured, funded, and executed.
As MP Ryan Turnbull noted so eloquently in a Finance Standing Committee meeting last year regarding the budget: “When a company can invest in new machinery and equipment and when it can invest in energy conservation, energy generation, zero-emission vehicles, other forms of assets, research and development, and intellectual property…those businesses are naturally going to be more competitive and more productive.”
He is right. Now that this legislation is passed, we are already seeing a shift toward:
- SR&ED financing filling gaps left by a tighter equity market.
- Tax credit incentives for R&D and the clean economy being embedded into models from day one.
- Credits used to de-risk large-scale infrastructure and industrial investments.
- Capital stacks that blend incentives with debt, equity, and alternative financing.
The real story here isn’t the credits themselves (policy without impact is useless), it’s the opportunity for these now-legislated incentive programs to unlock capital, accelerate deployment, and improve project economics.
Canada’s new budget may have taken time to arrive, but now that it is in force, it must translate into accelerated activity and stronger Canadian economic performance when it is needed most.
The opinions and analysis expressed in the above article are those of its author, and do not necessarily reflect the position of BetaKit or its editorial staff. It has been edited for clarity, length, and style.
Feature image courtesy Pixabay.