The federal government tabled Budget 2026 this week, and there is more in it for innovation-focused companies than we have seen in some time. For clarity, this budget still has to pass the House, but with no material opposition to the business measures so far, I expect what has been proposed is what we will be working with in 2027.
Below is a summary of the SR&ED and innovation funding announcements that matter most to our clients, and what I would be thinking about now. Where appropriate, I've noted whether each item is new, previously announced, or existing.
SR&ED Will Reach Into Commercialization
New. The headline for us is a $930 million expansion of the SR&ED program over five years, with $235 million ongoing. For the first time, costs incurred bringing a new product or process to market would be eligible. Two categories are being added:
- Regulatory and certification work. Tests, technical validations and studies done to meet regulatory requirements for the initial approval or certification of a product would qualify. The work must relate directly to a project that is already eligible under the existing SR&ED rules. Eligible costs follow the usual categories: wages, materials, contract costs, overhead, and machinery or equipment.
- Intellectual property protection. Costs to obtain and maintain patents, plant breeders' rights and registered copyrights in software would be eligible, as long as the IP comes out of eligible SR&ED work. That includes preparing and filing applications and periodic maintenance fees, in Canada or abroad. Litigation and enforcement costs are excluded, and the support activities themselves need to happen in Canada. If the IP is later sold, recapture rules would apply.
Both changes apply to taxation years beginning on or after Budget Day, November 5, 2026. CRA has also committed to sector-specific guidance on how commercialization costs fit in, which will matter given how much judgement goes into where experimental development ends.
Grants and Funding Programs
- Strategic Response Fund (new funding for an existing program). Budget 2026 adds $1 billion over six years, starting in 2028-29, to the program formerly known as the Strategic Innovation Fund (SIF). It stays focused on large-scale research, development and innovation projects in areas like AI, agri-food, biomanufacturing, and clean technology.
- Tariff-related support (existing). Since the Spring Economic Update, Ottawa has announced $16.6 billion in additional support for affected workers and businesses. For our clients, the relevant pieces are another $1.5 billion through the Regional Tariff Response Initiative, a new $2 billion Canada Strong Diversification Fund for shovel-ready projects, and a $500 million stream under BDC's Pivot to Grow program, now open to companies with as little as $1 million in revenue. All of this was announced before the budget.
- Regional development agencies (new). Agencies like PrairiesCan are being given more flexibility to tailor support to smaller businesses.
- Growth capital (previously announced). The Early and Growth Stage Investment Strategy delivers up to $750 million through BDC, with $75 million for pre-seed, and seed and $675 million for later-stage companies.
Tax Incentives
- Productivity Mega Deduction (existing). First announced in September and confirmed in the budget, this allows businesses to immediately write off the full cost of a broad range of capital assets on a permanent basis. Finance estimates it covers more than 65% of business investment and drops the marginal effective tax rate on new investment from 13% to 6.4%. Exclusions are limited, and CRA will confirm eligibility asset by asset once legislation is tabled.
- Canada Growth Incentive (new). An exemption on up to $15 million of capital gains from eligible investments in Canadian companies, plus an enhanced small business rollover. For founders and early employees holding equity, this is a meaningful change.
- Clean Technology and Clean Electricity ITCs (existing credits, new extensions). Both are extended to property available for use before 2041. The 30% Clean Technology credit would now step down to 15% only in its final year.
- Corporate loss transfers (new consultation). Finance is consulting on allowing wholly owned corporate groups to transfer current-year non-capital losses between entities. This could help groups with a profitable parent and a loss-making innovation subsidiary. Submissions are due January 8, 2027.
What This Means for You
The SR&ED changes are the most immediate. If you are spending on regulatory testing, certifications or patent filings tied to your project work, those costs could soon be claimable. I would start tracking them separately now so they are ready when the rules take effect. The same goes for capital purchases planned for 2027, where the Productivity Mega Deduction and SR&ED may both come into play.
We will be watching the draft legislation and CRA guidance closely and will share updates as the details firm up. If you would like to talk through how any of this applies to your business, we would love to connect and see if we can help.
Curtis Griffith is Vice President, Growth & Strategy at Copoint.
