Capital equipment is back in SR&ED. Learn eligibility tests, leases vs buys, shared-use rules, refundability limits, and a manufacturer-ready checklist.
Capital equipment is (effectively) back in the SR&ED conversation—and that’s a big deal for manufacturers who build pilots, retrofit lines, and buy test cells to prove out new processes. The key change proposed in the 2024 Fall Economic Statement (and confirmed/expanded in Budget 2025) is the restoration of SR&ED capital expenditure eligibility using “pre-2014” style rules, including rules for lease costs and shared-use equipment. (Budget Canada)
One important nuance: as of late 2025, these measures are tied to enacting legislation (e.g., Budget 2025 implementation bill work). In other words, the policy direction is clear, CRA has described the changes, and budgets/FES set the effective dates—but manufacturers should still work with their tax advisor on timing and claim strategy as legislation progresses. (Parliament of Canada)
Below is the manufacturer-focused, plain-language breakdown: what counts as “eligible equipment,” how the 90% tests work, how leasing is treated, what “shared-use equipment” means, and how to document it so both CRA and lenders are comfortable.
Key point: The SR&ED program historically supported R&D mainly through current expenditures (wages, materials, contracts, overhead). Capital expenditures were removed for property acquired after 2013, which hit equipment-intensive innovation hard—especially in manufacturing. The 2024 Fall Economic Statement proposed restoring that eligibility (generally using the pre-2014 approach), and Budget 2025 confirms the direction while also expanding other SR&ED parameters. (Budget Canada)
For manufacturers, this matters because SR&ED work often happens on:
If capital becomes credit-eligible again, your after-tax cash cost of innovation can drop—and that can change how you finance equipment (term, structure, timing, and documentation).
If you want a refresher on equipment financing structures in Canada (leases, end-of-term options, what lenders look for), start with: Equipment Leasing Canada (Mehmi guide). (Mehmi Financial Group)
Key point: The restoration is described as applying to property acquired on or after the date of the 2024 Fall Economic Statement (December 16, 2024) and, for lease costs, to amounts that first become payable on or after that date. CRA’s own “What’s new for corporations” summary describes the change with a very similar effective timing (often phrased as “after December 15, 2024”). (Budget Canada)
Practical manufacturer takeaway:
Reality check: SR&ED claims are evidence-driven. Your strongest position is always: clean purchase/lease paperwork + clear use tracking + a tight technical narrative tying the equipment to eligible SR&ED work.
Key point: For SR&ED capital expensing, the FES proposes that eligible capital expenditures are those to acquire new or used depreciable property that the claimant intends to either:
This is where manufacturers win or lose.
Operating time test (90% of time):
If the equipment is basically an R&D-dedicated asset (test cell, pilot reactor, prototype CNC cell used almost exclusively for SR&ED trials), you can often support the 90% operating-time story with:
Value consumed test (90% of value):
Sometimes the equipment is “used” a limited number of hours, but it’s burned down by SR&ED work (e.g., destructive testing rigs, tooling consumed through trials). This is where you need:
Underwriter lens (important): lenders don’t love “grey zone” assets. If you want the best financing outcomes, structure the project so the SR&ED equipment is clearly identifiable and demonstrably used for SR&ED—not vaguely “part of innovation.”
If your project is a hybrid additive/CNC setup (a common SR&ED environment), see Mehmi’s manufacturing-specific finance guidance: Hybrid Manufacturing Equipment Financing in Canada.
Key point: The FES details a crucial split:
So, in plain language:
This is one of the most common “manufacturer surprises” we expect to see in 2025/2026 planning.
Key point: The FES specifically notes that if an SR&ED-related capital expenditure doesn’t meet the “all or substantially all” tests for a full deduction, it may still qualify as “shared-use equipment”—meaning part of the cost could be eligible for the SR&ED tax credit. (Budget Canada)
This is the real-world manufacturing scenario:
What manufacturers should do now:
Build a simple internal policy for shared-use assets:
This is not just tax hygiene—it reduces lender uncertainty when you finance equipment tied to innovation projects.
Key point: The restored approach explicitly includes lease costs (the right to use capital property) where amounts first become payable on/after the FES effective date. (Budget Canada)
If you’re leasing:
If you want a practical leasing framework (tax + documentation + underwriting logic), these Mehmi guides help:
Key point: For qualifying CCPCs earning the enhanced 35% SR&ED credit, the FES states that credits earned on capital expenditures would be only partially refundable—up to 40%—unlike credits on current expenditures which are fully refundable up to the expenditure limit. (Budget Canada)
So the manufacturer-friendly translation is:
This is exactly how a credit analyst thinks: SR&ED is a helpful tailwind, not the primary repayment source.
Key point: The FES notes that recapture rules would apply if a taxpayer sells or converts the use of SR&ED capital property—affecting CCA on claimed/unclaimed SR&ED capital expenditures and the ITC. (Budget Canada)
Manufacturer implications:
This is also where leasing can reduce headaches—because you’re not disposing of owned property the same way (but you still need to manage lease documentation and end-of-term decisions).
If liquidity is your main constraint (not the purchase itself), consider reading: Sale-Leaseback on Equipment in Canada (convert “metal equity” into working capital without stopping production). (Mehmi Financial Group)
Key point: Budget 2025 confirms implementation of SR&ED enhancements and proposes further increases—most notably raising the enhanced credit expenditure limit to $6 million for taxation years beginning on/after December 16, 2024. (Budget Canada)
For manufacturers scaling R&D teams, this can matter as much as equipment eligibility.
Also, keep an eye on legislative progress: Bill C-15 was introduced November 18, 2025, and commentary at the time indicated uncertainty on enactment timing (late 2025 vs early 2026). (Canada)
Key point: In financing, lenders underwrite repayment using the 5Cs: character, capacity, capital, collateral, and conditions. SR&ED affects mostly capacity (cash flow) and sometimes capital (retained earnings), but lenders discount it because of timing and review risk. (Budget Canada)
SR&ED doesn’t change the equipment’s resale value. It changes your cash position later—so it helps, but it’s not collateral.
What strengthens approvals:
If you’re comparing lender types and terms (and trying to avoid hidden traps), this guide is a good companion: Business Financing in Canada: How to Compare Offers and Avoid High-Cost Traps. (Mehmi Financial Group)
Key point: Treat SR&ED equipment eligibility as a three-part test: timing, use, and proof.
All of this comes straight out of the FES SR&ED capital rules summary and related CRA guidance. (Budget Canada)
Key point: The best structure is the one that keeps production stable while your SR&ED claim remains defensible.
And if you’re managing multiple lines/projects at once (common in automotive, aerospace, packaging, food manufacturing), a portfolio approach beats one-off deals—see: Multi-Project Equipment Fleet Financing Strategy (Canada). (Mehmi Financial Group)
Business: Ontario manufacturer (45 employees), engineered polymer components
Goal: Reduce scrap and cycle time using a new toolpath + process controls approach
Project: Pilot cell (CNC + metrology + automation add-ons) used to prove repeatability before scaling
Capital spend: ~$410,000 (equipment-heavy; commissioning and integration itemized separately)
What they did right (SR&ED + lender-ready):
How underwriting looked (5Cs):
Outcome: Pilot cell validated changes, scrap rate fell, and the company expanded capacity without draining working capital. The SR&ED benefit improved after-tax cash flow, but the approval stood on core operating strength—exactly what lenders want.
If you’re planning a 2025/2026 equipment purchase that’s genuinely tied to experimental development (new process, new material, new control method), the best move is to package the story once—so both your SR&ED advisor and your financing partner are looking at the same clean documentation.
A practical starting point (leasing-first, Canadian context): Equipment Leasing Canada (Mehmi guide). (Mehmi Financial Group)
The 2024 Fall Economic Statement proposed restoring eligibility for SR&ED capital expenditures under pre-2014 style rules, applying to property acquired on/after Dec 16, 2024, and lease amounts first payable on/after that date. (Budget Canada)
Not necessarily. Full expensing focuses on “all or substantially all” (generally ~90%+) SR&ED use tests, but the FES also describes shared-use equipment where part of the cost may be eligible for the SR&ED tax credit. (Budget Canada)
For the deduction/expensing component, eligible capital expenditures can include new or used depreciable property (subject to the SR&ED use tests). For tax credit purposes, eligibility can be more restrictive (including prior-use restrictions). (Budget Canada)
The restored approach includes lease costs (right to use capital property), with timing based on amounts that first become payable on/after the effective date described in the FES. (Budget Canada)
Not always. CRA’s summary and the FES indicate partial refundability (up to 40%) for capital-expenditure SR&ED credits for qualifying CCPCs using the enhanced 35% credit, unlike current expenditures which are fully refundable up to the expenditure limit. (Budget Canada)
Budget and FES documents set the direction and effective dates, and CRA summarizes the proposed changes—but implementation depends on enacting legislation. In late 2025, Bill C-15 was introduced and timing of enactment was still being discussed publicly. (Canada)
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