Canada's federal R&D tax-credit program, a major non-dilutive source: refundable for Canadian-controlled private companies, paid after the fiscal year.
SR&ED (Scientific Research and Experimental Development) is Canada’s federal tax incentive for research and development, the largest single program of its kind in the country. It rewards eligible work, experimental development, applied and basic research, with investment tax credits on qualifying expenditures (salaries, materials, some contractor costs). A Canadian-controlled private corporation earns an enhanced rate that is refundable up to an annual expenditure limit, meaning the credit is paid in cash even when the company owes no tax; other claimants earn a lower, generally non-refundable rate. Most provinces add their own SR&ED-linked credits on top.
The exact rates and limits are set in legislation and have been substantially reformed recently (the enhanced-rate expenditure limit and the phase-out thresholds were raised, and eligibility was extended to some public corporations), so a live claim must be sized against the current year’s rules, not a remembered number. What does not change is the operator reality. The credit is claimed with the corporate tax return after the fiscal year ends, then reviewed, so the cash lands months after the spend, a lag that must be modelled honestly in the runway. The claim quality depends on contemporaneous documentation: what was attempted, what technological uncertainty existed, what experiments were run. Thin documentation invites review and reduces the claim.
Two further points matter for deep tech. First, stacking: other government assistance (an IRAP contribution, certain grants) reduces the SR&ED-eligible base, so the credits interact and cannot simply be added. Second, financing: because the refund is a predictable receivable, specialist lenders advance against it, letting a company convert next year’s refund into this quarter’s runway, at a cost. SR&ED is foundational to the Canadian deep tech capital stack, but it is a reimbursement engine, not a grant that arrives when the bills do.
For a Canadian quantum company, SR&ED is often the single largest non-dilutive line, because the work is R&D-heavy and most of it qualifies. Two operator facts shape the cash plan: the credit is refundable for a CCPC but arrives after year-end filing and CRA review (so it is next year's cash, not this quarter's), and other government assistance reduces the eligible base (stacking). Many deep tech companies finance the receivable to pull the cash forward.
A Canadian-controlled private company spends $1,000,000 of qualified SR&ED within its expenditure limit. At the 35% enhanced refundable federal rate, that is a $350,000 cash refund (before any provincial credit), received after the year-end claim is filed and processed, not during the year the money was spent.
From definition to decision
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