Key takeaway: The SR&ED expenditure limit is the ceiling on how much of your spend earns the enhanced 35% refundable rate instead of the basic 15% rate: $6 million a year for tax years beginning after December 15, 2024. That limit isn't fixed for every company. It starts shrinking once your taxable capital passes $15 million and hits zero at $75 million. A growing CCPC can lose the enhanced rate on a big chunk of its R&D spend without ever being told, unless someone is tracking the number. On a claim near the full limit, the gap between the 35% and 15% rates is worth up to $1.2 million a year.
Every SR&ED explainer quotes the SR&ED expenditure limit as a flat $6 million every company gets. It isn't. It's a ceiling that starts at $6 million and shrinks as your company grows, based on a figure most founders have never calculated by hand: taxable capital.
What the expenditure limit actually caps, how the phase-out shrinks it as you scale, what happens to the spend that falls outside it, and the two mechanics that matter once you're operating near the edge of it: carryforward, and a clawback most people never see coming.
How the SR&ED expenditure limit works
The SR&ED expenditure limit is the amount of qualified SR&ED spend that earns the enhanced 35% refundable investment tax credit rate in a year. Spend above it earns the basic 15% rate instead. For most CCPCs and, since the Bill C-15 changes, eligible Canadian public corporations (ECPCs), that limit is $6 million for tax years beginning after December 15, 2024, double the old $3 million ceiling for tax years that began before that date. The full rundown of what Bill C-15 changed covers this alongside the other 2026 program updates. This post stays narrowly on the one number that quietly moves as your company grows.
Twenty points separate the enhanced and basic rates, and that gap is the whole reason the limit matters. Per the CRA's investment tax credit policy, the enhanced-rate ITC on current expenditures is 100% refundable up to the limit for most CCPCs. Real cash, not a carryforward you might use someday. At the full $6 million limit, that's up to $2.1 million in refundable credit versus $900,000 at the basic rate on the same spend. The SR&ED guide walks through where this limit sits relative to every other rate and threshold in the program, if you want the wider map before drilling into this one piece.
How the phase-out actually shrinks your limit
Your $6 million limit doesn't survive contact with growth. For a CCPC with a tax year beginning after December 15, 2024, the limit starts decreasing once the taxable capital employed in Canada in the previous tax year passes $15 million, and it's fully gone (nil) once taxable capital reaches $75 million — the whole mechanic is a sliding scale across a $60 million band, $6 million at one end, zero at the other.
Older tax years, those beginning before December 16, 2024, worked over a narrower and lower band: the limit began shrinking at $10 million of taxable capital and hit zero at $50 million. Bill C-15 moved both ends of the band up by $5 million and $25 million respectively. A meaningful widening, but it's a shift in where the phase-out happens, not a removal of it.
Taxable capital is a specific, defined tax measure calculated from your balance sheet, not from your last funding round's valuation or your total capital raised. A company that's raised a large amount in venture funding and burned most of it can have a much smaller taxable capital figure than its funding history suggests, while a profitable, capital-intensive business can reach the phase-out sooner than its funding round headlines would imply. The two numbers move independently. Ask your accountant for your actual figure before assuming either extreme — this isn't something to estimate from your cap table.
What happens to spend above your limit
Spend above your expenditure limit still earns a credit, just at the basic ITC rate of 15% instead of the enhanced 35%, per the same CRA policy. It's a real credit, non-refundable for most corporations rather than fully refundable, and calculated on exactly the same qualified expenditures you'd otherwise report at the enhanced rate.
That distinction is where the real cost hides. A company that models its whole claim at 35% because that's the number on the program's homepage overstates its refund the moment any spend crosses into the phased-out zone. And the overstatement compounds. Taxable capital climbs through the $15–75 million band a little more every year the company grows, so last year's model doesn't carry forward unchanged.
This isn't the same mechanism as the provincial grind
The expenditure limit phase-out and the federal grind rule both shrink a company's SR&ED credit, and founders regularly conflate the two. They're not the same lever. The grind reduces the base your federal rate applies to, because a provincial credit counts as government assistance under subsection 127(18) of the Income Tax Act — it happens every year you claim a provincial credit, at any size of company. The expenditure limit phase-out instead reduces how much of your spend qualifies for the 35% rate at all, based on your taxable capital or revenue, independent of whether you claim any provincial credit whatsoever.
A company can face either mechanism, both, or neither in a given year. A small, early-stage CCPC with a permanent establishment in Ontario faces the grind on its OITC claim but is nowhere near the expenditure-limit phase-out. A large, profitable CCPC with no R&D presence in a province with a general credit faces the phase-out but has no grind to calculate. Model them separately — collapsing them into one mental "my rate goes down somehow" bucket is how founders end up with a refund estimate that's wrong in a way nobody can trace back to a cause.
Associated corporations share one limit, not one each
If your company is associated with one or more other CCPCs, you don't each get your own $6 million. Per the CRA's investment tax credit policy, associated corporations must allocate a single expenditure limit among the group, using Form T2SCH49, the Agreement Among Associated CCPCs to Allocate the Expenditure Limit. This trips up companies that restructure into multiple entities: a holding company plus an operating subsidiary, or separate entities for separate product lines, without realizing the SR&ED math treats them as one claimant for this purpose. Two associated $6-million-eligible entities don't add up to $12 million. They split whatever the group's combined taxable capital works out to.
ECPCs use a different yardstick: average revenue, not taxable capital
Eligible Canadian public corporations don't have the taxable-capital problem CCPCs do, because they're measured differently. For an ECPC with a tax year beginning after December 15, 2024, the expenditure limit reduces once the corporation's average revenue over the previous three fiscal years exceeds $15 million, and it hits nil at the same $75 million ceiling as the CCPC band. Same shape, same endpoints, different input variable — a three-year revenue average instead of a single-year balance-sheet figure.
One more option exists only in this direction: for tax years beginning after December 15, 2024, a CCPC or group of associated CCPCs can elect to calculate its expenditure limit the ECPC way, using average revenue instead of taxable capital, under certain conditions. Whether that election helps depends entirely on which number puts you further from the phase-out band, your taxable capital or your three-year average revenue, and that's a company-specific calculation worth doing with an accountant rather than guessing.
Carryforward turns an unused credit into next year's problem, not a lost one
An ITC you can't use this year isn't gone. That matters because the phase-out often produces exactly this situation for a growing company that's finally turned profitable. If your SR&ED credit exceeds what you need to reduce income tax payable to zero, and it isn't refundable, you can carry the unused amount back up to 3 tax years or forward up to 20, applying it against tax payable in those other years. For a company that just crossed into the phased-out zone and is now earning more of its credit at the non-refundable 15% rate, the carryforward window keeps that credit from simply evaporating. It just means the cash isn't showing up in this year's bank account.
Recapture: the clawback that catches growing companies off guard
There's a mirror-image trap on the capital side that founders scaling past early-stage SR&ED rarely see coming. Sell or convert to commercial use a piece of property you'd previously claimed as an SR&ED capital expenditure, and you may owe an ITC recapture: the credit you earned on that property gets added back to your income tax payable in the year of the sale or conversion. It applies to depreciable capital property acquired before 2014 or after December 15, 2024 (the years capital expenditures have been eligible). The rule exists so a company can't claim a credit on equipment and then sell that same equipment for its full value without giving any of the credit back. If your R&D program buys and later resells or repurposes hardware like lab equipment, specialized servers, or prototyping tools, flag it to whoever files your T2SCH31 before the sale happens, not after.
Why "roughly $6M" is the wrong way to model it
Don't reach for a straight-line estimate of your own reduced limit from the $15–75 million band. The CRA publishes the two endpoints of the phase-out — full $6 million limit at $15 million of taxable capital, nil at $75 million — but not the exact percentage-at-each-point formula in the plain-language guidance this post draws from; that lives in the fuller SR&ED ITC Policy, and it's the kind of calculation worth having an accountant or your SR&ED preparer run against your actual prior-year taxable capital rather than eyeballing from the two published endpoints. The risk of guessing isn't small: a company sitting somewhere in the middle of the band that assumes its limit is simply "$6 million minus a bit" can build a refund forecast that's off by hundreds of thousands of dollars in either direction.
What you can do without a specialist calculation is the sanity check: know roughly where your taxable capital sits relative to $15 million and $75 million, and treat anything closer to the $15 million end as "mostly intact" and anything past the midpoint as "meaningfully reduced — get the real number before you plan around it." That framing alone stops the two most common mistakes: assuming the full $6 million applies when it doesn't, and assuming the limit is zero when a company is still well inside the phase-out band and earning a substantial enhanced-rate credit on most of its spend.
Who this actually matters to
If your company is nowhere near $10 million of taxable capital, most of this is background reading, not action items. A seed or Series A startup burning cash on R&D is exactly the profile the enhanced rate was built for, and the phase-out band starts well past where most companies that age sit — you'll get more immediate value from a first-claim guide or from understanding how to bridge the cash gap before your refund lands than from tracking a threshold you're years from reaching. Come back to this post once growth actually puts you within a few years of it.
Where this earns its place on your radar is the middle stretch: profitable, scaling, past your first few funding rounds, taxable capital climbing toward eight figures. That's the range where a claim built on last year's 35% assumption quietly overstates this year's number, and where the associated-corporations rule can bite a company that restructured for entirely unrelated reasons. If you're in that range, verifying your current taxable capital position before you build a claim forecast is worth the accountant's time it takes. It's also worth checking whether your company has crossed into pre-claim approval eligibility territory — that program has its own income ceiling, a separate number from anything in this post, but companies growing past one threshold are often approaching others around the same time.
Building the limit into your actual claim
The expenditure limit isn't a number you look up once. It moves every year your taxable capital or three-year average revenue moves, which means the enhanced-rate portion of your claim needs recalculating alongside your eligibility work, not assumed forward from last year's return.
That's the part of the process Glauq treats as ongoing rather than annual: the same continuous documentation that captures your technical narrative also tracks the expenditure figures a qualified independent SR&ED expert needs to confirm which portion of your claim actually lands at 35% versus 15% before the number goes anywhere near the CRA. A flat fee means a bigger claim, or a more complicated one because you crossed into the phase-out band this year, doesn't change what you pay to get it right.
Frequently asked questions
What is the SR&ED expenditure limit for 2026? $6 million for tax years beginning after December 15, 2024, for most CCPCs and for eligible Canadian public corporations. Spend up to that limit earns the enhanced 35% refundable rate; spend above it earns the basic 15% rate. Tax years that began before December 16, 2024 used a $3 million limit.
How does the SR&ED expenditure limit phase-out actually work? For a CCPC with a tax year beginning after December 15, 2024, the $6 million limit starts shrinking once the taxable capital employed in Canada in the prior tax year exceeds $15 million, and reaches nil at $75 million. Older tax years used a $10–50 million band. ECPCs are measured on a three-year average revenue instead, over the same $15–75 million range.
What happens to spend above my expenditure limit? It still earns a credit — just the basic 15% rate instead of the enhanced 35%, and typically non-refundable rather than fully refundable for most corporations. It isn't disqualified spend; it's spend priced at the program's standard rate rather than the CCPC-enhanced one.
Do associated corporations each get their own $6 million limit? No. A group of associated CCPCs shares one expenditure limit, allocated among the members using Form T2SCH49. Splitting R&D across multiple related entities doesn't multiply the limit.
Can I carry forward an SR&ED credit I can't use this year? Yes. Unused investment tax credits can be carried back up to 3 tax years or forward up to 20, applied against tax payable in those years. This is the mechanism that keeps a credit earned at the non-refundable basic rate from being wasted the year it's earned.
Can selling equipment I claimed for SR&ED cost me credits later? Potentially, yes — through ITC recapture. If you sell or convert to commercial use capital property you'd claimed as an SR&ED expenditure, the credit you earned on it can be added back to your income tax payable in the year of the sale. It applies to capital property acquired before 2014 or after December 15, 2024.
The $6 million figure everyone quotes is real, but it's a starting point, not a guarantee. Know where your company sits on the taxable-capital band before you build next year's refund forecast around a rate you might not still qualify for.
See what your expenditure limit actually looks like this year — estimate your refund or check your eligibility.