Xanadu’s March debut on the Toronto Stock Exchange and Nasdaq marked a milestone for Canadian quantum computing. It became the first Canadian tech firm to list on the TSX since 2021, raising $302 million USD in gross proceeds.
Perhaps more remarkable, the company, which is building photonic quantum computers designed to solve problems beyond today’s capacity, attracted that level of investment while a commercially useful system and the revenue it could generate may still be years away.
“Venture capital is built to reward speed and reduce risk quickly. Tough tech is the opposite of that on both counts.”
That gap—between innovation spending and selling—is a defining feature of tough tech. Whether it’s quantum or clean tech, advanced materials or next-generation therapeutics, these companies aren’t simply improving an existing product. They’re trying to turn new science into something that doesn’t exist yet. It can take years to test the idea and build what’s needed to bring it to customers, with no guarantee it will work as intended.
That makes securing money even harder than usual. Investors must commit before there’s a proven product or customer demand, then wait much longer to find out whether the investment will pay off. That kind of bet isn’t for everyone.
“Venture capital is built to reward speed and reduce risk quickly,” said Paul Davenport, head of content at Canadian R&D tax credit platform Boast. “Tough tech is the opposite of that on both counts.”
That’s why recent changes to Canada’s Scientific Research and Experimental Development program, better known as SR&ED, are particularly relevant to deep tech. By recognizing more of the upfront physical costs, the updated program could help extend the runway from a scientific breakthrough to something that can be put to work in the real world.
More costs qualify
SR&ED is Canada’s largest federal R&D support program, returning, on average, more than $4.4 billion in tax credits to over 19,000 claimants every year as non-dilutive capital to offset the cost of experimentation.
For years, the program was often considered a better fit for software and SaaS. Capital costs were removed from SR&ED more than a decade ago, leaving companies doing physical R&D able to claim eligible wages and materials, but not much of the property needed to carry out the work. Bill C-15, the federal budget legislation that became law in March, changes that. It restores capital expenditure eligibility for qualifying property acquired on or after Dec. 16, 2024, bringing more of the physical investment behind eligible R&D back into a claim.
“Wages and materials were never the whole story for capital-intensive R&D,” said Davenport. “Now the equipment and infrastructure that this kind of research actually depends on is back in scope.”
The legislation also doubles the annual spending limit for the enhanced refundable credit from $3 million to $6 million. At the 35-percent rate, the maximum federal refund rises from $1.05 million to $2.1 million. Eligible Canadian public companies can access the enhanced credit for the first time, as well.
SR&ED still won’t replace investors or government grants, said Davenport. The money comes back after eligible work has been completed, but it can be put toward another experiment or technical milestone, helping other sources of funding go further.
Review the receipts
The broader eligibility doesn’t mean every purchase can be claimed. SR&ED can be complicated because what matters isn’t simply what a business bought or spent, but when it was acquired, how it was used and whether that use can be tied directly to eligible research.
“The biggest misconception is assuming that this change is automatic,” said Davenport. “It’s just not that simple.”
For companies wondering whether the new rules apply to them, he suggests starting with major capital purchases from the past 12 to 18 months. Review the receipts and flag any specialized equipment, prototyping tools or pilot-line infrastructure acquired after the eligibility date. Some of those costs may now qualify, including purchases made by businesses that previously decided a claim wasn’t worth the effort.
Those with filings already underway should also check whether affected tax years can include the newly eligible spending rather than waiting until the next one.
The larger opportunity is to make SR&ED a regular part of the financing plan instead of trying to piece everything together at tax time. Boast, for example, can help companies review their spending, connect purchases to eligible work and gather the technical and financial records needed to support a claim. Once that process is in place, teams can document the research as it happens and plan how any refund could support the next stage.
Davenport said university and public research has created an early advantage in deep tech. Helping private companies build the facilities and specialized teams they need could extend that lead as the technologies mature.
“Canada is already going to be off to the races,” he said.
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Not sure whether your capital purchases qualify under the new rules? Talk to a Boast SR&ED expert.