Canada is making a bold bet on hard technology. With significant enhancements to the Scientific Research and Experimental Development (SR&ED) program announced in Budget 2025, the country is signalling serious intent to support the manufacturers, robotics developers, and cleantech innovators who have long been underserved by federal R&D incentives.
The stakes could hardly be higher. As global supply chains reshape and companies race to nearshore production, Canadian hard tech companies are positioned to compete—if they have the capital to take risks and run experiments without crippling their balance sheets.
A Game-Changing Expansion
SR&ED, Canada's largest federal R&D support program, returned more than $4.5 billion in 2025 to over 22,000 businesses. Yet for years, the program was dominated by software and SaaS companies. Hardware manufacturers and companies running physical production trials found themselves largely frozen out.
That's changing fast. The enhanced refundable credit limit has doubled from $3 million to $6 million annually—meaning an additional $2.1 million back each year for eligible companies. Capital expenditures (capex)—the equipment, materials, and facilities needed to test new manufacturing processes—are now eligible for the first time since 2014. And publicly traded companies can access the program's strongest benefits for the first time, opening doors for larger players who've never qualified before.
"If you have this funding, you can really dig into doing even more investigation. You can take more risk, because Canada wants to make it so that you don't have to be so risk-averse to the point where nothing new ever gets developed," said Paul Davenport, Head of Content at Boast, a Canadian R&D tax credit platform.
Why This Matters for Manufacturers
Bringing a new manufacturing idea to market is brutally expensive. Before you know whether a concept will work, you need to buy materials, lease production facilities, purchase or lease specialized equipment, and run trial runs. Those upfront costs can drain a startup's runway in months.
The capex eligibility change directly addresses this challenge. "The capital expenditures portion has become really lucrative for manufacturers," Davenport explained. "You need to pay for your materials, you need to pay for the actual facilities you're going to be doing the R&D in, and now you can claim against that."
Enhanced phase-out thresholds mean mid-sized companies stay eligible longer as they scale, keeping the program accessible to companies at critical growth stages.
Who Benefits?
The expanded SR&ED eligibility net catches more companies than many entrepreneurs realize. Cleantech firms developing novel sustainable materials, companies integrating robotic systems into production lines, and hard tech founders running environmental sustainability trials all qualify—as long as they're solving problems no one has solved before and documenting their process rigorously.
Vancouver-based CTK Bio, which develops sustainable plastic alternatives through rigorous R&D, is now bringing manufacturing back to Canada, partly because programs like SR&ED make the economics increasingly favourable. That's exactly the story Canada hopes to replicate across the hard tech and manufacturing sectors.
A Competitive Advantage
"It's a very generous opportunity that you don't see in other regions or in other countries," Davenport noted. For Canadian startups and manufacturers competing globally, that generosity could be the difference between scaling production at home or relocating south of the border.
As geopolitical tensions reshape supply chains and companies reconsider offshoring strategies, Canada's hard tech ecosystem has an opening. The question is whether programs like the enhanced SR&ED can help Canadian innovators seize it.
This article is based on reporting from BetaKit. Read the original story at betakit.com.