The Return of Capital, Lease, and Rental Costs to Canada's SR&ED Program: A Boost for Alberta's Manufacturers and E&P Companies
As we move towards the end of 2025, Canadian businesses engaged in innovation are buzzing about the proposed reforms to the Scientific Research and Experimental Development (SR&ED) tax incentive program. These changes promise to reinstate eligibility for capital expenditures, leases, and rentals, costs that were phased out back in 2014. For manufacturing and E&P firms in Alberta, this will mean a significant expansion in claimable expenditures. At Copoint, with over 25 years of experience helping Alberta-based clients navigate SR&ED claims, we have seen firsthand how these incentives drive growth in capital-intensive industries. We are proactively monitoring the legislation's progress -public comments closed in September 2025- and advising clients on how to prepare.
Capital Costs: Reinventing Eligibility for Big-Ticket Investments
Capital expenditures represent the core of the reinstatement. Under the drafts, costs for acquiring property like specialized machinery or testing equipment would qualify if tied to experimental development aimed at technological advancement or uncertainty resolution. This is not for routine purchases; the asset must be used primarily in SR&ED-eligible work during its useful life. Imagine a Calgary-based fabrication company experimenting with additive manufacturing (3D printing) for aerospace parts; purchasing a high-precision laser sintering machine could now be claimed, potentially yielding thousands in credits. Previously, only labor and materials were eligible; now, the full capital outlay(say, $500,000) could contribute to the claim base. For E&P companies, capital costs are even more pivotal. Alberta's oilfields demand heavy investments in equipment for pilot projects and testing novel extraction methods.
Lease and Rental Costs: Flexibility for Short-Term Experimentation
Leases and rentals add another layer of opportunity, especially for companies testing ideas without committing to ownership. The proposals treat lease payments as qualified expenditures if the leased asset is used primarily for SR&ED. This includes operating leases for machinery, tools, and other equipment, with costs claimed in the year they are payable. This is a notable change for manufacturers in Alberta facing supply chain uncertainties. For E&P firms, leasing aligns perfectly with field trials. Oilfield operations often involve temporary setups, and renting equipment reduces upfront capital needs while still qualifying for incentives. Copoint has helped clients structure leases to maximize SR&ED benefits, ensuring that documentation proves the asset's primary use in experimentation.
Real Examples: Boosting SR&ED Claims for E&P Pilot Projects in Alberta's Oilfields
Let's ground this in reality with examples from Alberta's E&P sector, where experimental pilot projects are common for enhancing recovery rates, reducing emissions, or optimizing drilling. These projects often involve technological uncertainties, making them prime for SR&ED. Consider a mid-sized E&P company in piloting a new production variant to improve oil extraction efficiency while cutting water usage, a key sustainability goal. In a traditional setup, they'd claim salaries for engineers and materials like chemicals. With the reforms, capital, lease, and rental costs ramp up the claim significantly.
- Capital Expenditure Example: The company buys specialized downhole sensors and monitoring equipment for $1.2 million to track real-time reservoir data during the pilot. This resolves uncertainties in fluid dynamics. Previously ineligible, this cost now qualifies fully if used 90%+ for SR&ED. That's a potential $180,000increase to ITCs.
- Lease Expenditure Example: To deploy the pilot without owning heavy machinery, the lease costs associated with the pilot are $800,000. Lease payments, when used directly on the pilot, add $800,000 to the expenditure pool. This could yield an additional $120,000 in credits, helping offset the project's high failure risk.
- Rental Expenditure Example: For ancillary tools, they rent geophysical surveying equipment and portable labs for $300,000 over the pilot duration. These rentals enable on-site experiments with seismic data integration, addressing uncertainties in subsurface mapping. Now claimable, this increases the total SR&ED base by $300,000, potentially adding $45,000 in credits.
In aggregate, for a $5 million pilot project, pre-reform claims might cover $2 million (labor/materials), yielding $300,000 in SR&ED credits. Post-reform, adding $2.3 million in capital/lease/rental pushes the base to $4.3 million, with credits up to $645,000: a 115% increase. We've seen similar scenarios in past claims; one client in the oil sands boosted their recovery by 20% through such a pilot, and these reforms would have amplified their financial return.
Proactively Managing the Change with Expert Guidance
These examples highlight the potential, but success hinges on compliance. The CRA emphasizes detailed records -time logs, project charters, and usage trackers- to substantiate primary SR&ED use. Audits are expected to rise, so proactive planning is key. That's where an expert firm like Copoint comes in. With a track record of securing over $600 million in SR&ED credits for Alberta clients, we execute project identification to claim filing. The reinstatement of capital, lease, and rental costs marks a pivotal evolution for SR&ED, empowering Alberta's innovators to tackle bigger challenges. By embracing these opportunities with expert support, your company can turn experimental risks into rewarding breakthroughs.
