What changed.

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For years, Canadian-controlled private corporations (CCPCs) could only measure their SR&ED expenditure limit one way: by prior-year taxable capital. The expenditure limit is the pool of qualified spending that earns the enhanced 35% refundable investment tax credit. That changed when Bill C-15, the Budget 2025 Implementation Act, No. 1, received Royal Assent on March 26, 2026. CCPCs can now elect to base the phase-out on average annual revenue from their financial statements over the three preceding fiscal years. The limit itself also doubled, from $3 million to $6 million, worth up to $2.1 million in refundable credits a year. Under either test the limit begins shrinking at $15 million and reaches zero at $75 million. What changes is the yardstick.

Why it matters for funded startups.

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Taxable capital tracks your balance sheet:the equity you’ve raised, your retained earnings and your debt. It does not track commercial traction. That created an adverse result: the more successfully a deep-tech or software company raised money, the faster it lost the refundable credit that funds its R&D. Under the old rules, a pre-revenue company that closed a large round could see its limit ground down in the following year, and lose it entirely once taxable capital hit $50 million. At that point its SR&ED became a 15% non-refundable credit, worth nothing in cash until it turned a profit. The revenue election fixes this. Take a startup carrying $80 million of taxable capital after a big raise but with under $15 million in average revenue. Under the taxable capital test its limit is nil. Under the revenue test it keeps the full $6 million, worth up to $2.1 million in cash every year. The election is optional and can be made year by year, so companies can use whichever test produces the higher limit.

When it applies and what to do.

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The election applies to taxation years beginning after December 15, 2024. For a calendar-year company, that means fiscal 2025 onward, and those claims are being prepared right now. The Income Tax Act requires the election to be filed “in the prescribed form and manner.” The CRA’s revised T2 Schedule 31 (published May 22, 2026) now asks whether the corporation is a CCPC making the election and captures its three-year average revenue. Your SR&ED claim (Form T661 plus Schedule 31) must reach the CRA within 12 months of your T2 filing due date, which the CRA puts at 18 months after year-end. Miss it and the credit is lost. If you have associated corporations, CRA policy requires every CCPC in the group to elect jointly, and the revenue of all group members is combined. The CRA’s SR&ED Investment Tax Credit Policy (revised October 7, 2026) says a separate schedule to allocate the revenue-based limit among electing groups will be released in Fall 2026. Until it arrives, the CRA tells claimants to keep detailed working papers.

MCN can help you determine the best path forward by:

1. Modelling both tests every year before filing.
2. Assess your financial statements and map your associated group.
3. Confirm you still qualify as a CCPC, especially after foreign or VC investment.
4. Time your year-end and financing rounds with the limit in mind.

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Talk to MCN. MCN’s founders have built, scaled and exited technology companies. We know what a refundable credit means to your runway. Contact us to find out how much of your SR&ED refund you can keep.

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