Ontario is adding more than $50 million in R&D tax support over the next three years by restoring certain capital expenditures as eligible costs under two provincial credits.
The change applies to the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit. In its 2026 Fall Economic Statement, the province said the expanded support is expected to lower the cost of research and development for about 700 businesses.
Ontario says eligible businesses can now claim qualifying capital expenditures under the affected provincial R&D credits, in addition to eligible labour costs incurred in support of R&D activities in Ontario. The measure expands existing credits rather than introducing a new application-based grant.
The province listed examples that include software and hardware testing tools, high-performance computing equipment, prototyping equipment, and certain property or lease costs. The expansion covers capital expenditures on property acquired on or after December 16, 2024.
Ontario said the provincial change took effect automatically when the corresponding federal legislation in Bill C-15 received Royal Assent on March 26, 2026. Parliament’s text of Bill C-15 shows federal SR&ED changes restoring the eligibility of capital expenditures, while the Canada Revenue Agency has since updated its SR&ED capital expenditures policy to reflect the new date rules.
The two Ontario credits affected
The Ontario Research and Development Tax Credit is a non-refundable credit for corporations with a permanent establishment in Ontario and eligible SR&ED expenditures carried out in the province. The Canada Revenue Agency states that the credit equals 3.5 per cent of eligible expenditures for taxation years ending on or after June 1, 2016. Unused credit amounts can be carried back three years or carried forward 20 years.
The Ontario Innovation Tax Credit is a refundable credit aimed at eligible corporations carrying on SR&ED in Ontario. The CRA states that the credit is 8 per cent of qualified expenditures incurred in Ontario and eligible repayments, with a maximum annual expenditure limit of $3 million. Associated corporations must share that limit, and the limit is reduced based on income and specified capital thresholds.
The change does not mean every technology purchase now qualifies. The CRA’s SR&ED capital expenditures policy says capital expenditures made after December 15, 2024, may qualify for SR&ED incentives, but the expenditure must meet the applicable SR&ED capital expenditure rules. The policy also warns that capital assets can trigger recapture rules if the property is sold or converted to commercial use.
Why the change matters for capital-heavy R&D
For software-only projects, the impact may be limited if most claimable work is already tied to salaries, contractor work or other current expenses. For businesses where R&D requires dedicated equipment or facilities before a product is commercially ready, the change could affect equipment planning and the after-tax cost of experimentation.
That could include companies working in artificial intelligence infrastructure, robotics, hardware, advanced manufacturing, life sciences, clean technology, semiconductors, sensors or other fields where testing and prototyping can require meaningful upfront capital spending.
The province’s own examples point to that distinction. Testing tools, high-performance computing equipment and prototyping equipment are not general operating expenses. They are the types of assets that can become part of the experimentation process when a business is trying to resolve technical uncertainty.
Federal SR&ED changes set the backdrop
Ontario’s Fall Statement frames the provincial change as an alignment with recent federal SR&ED enhancements. The CRA’s SR&ED updates say Bill C-15 introduced changes that apply for tax years beginning after December 15, 2024, including a higher expenditure limit for the enhanced 35 per cent federal investment tax credit, an increase in the taxable capital phase-out range, access for eligible Canadian public corporations, and the restored eligibility of eligible SR&ED capital expenditures made after December 15, 2024.
The CRA’s investment tax credit policy says the maximum expenditure limit for Canadian-controlled private corporations and eligible Canadian public corporations is now $6 million for tax years beginning after December 15, 2024. For Canadian-controlled private corporations, the phase-out now begins at $15 million of taxable capital employed in Canada and reaches nil at $75 million.
What businesses may need to review
The timing is one of the more practical parts of the announcement. Since the eligible property date reaches back to December 16, 2024, companies with Ontario SR&ED activity and capital purchases after that date may need to revisit how those costs were tracked, classified and documented.
That review is likely to be most relevant for businesses that already claim SR&ED or are preparing claims for tax years affected by the federal changes. The eligibility test still depends on the underlying SR&ED rules, the property’s use, the filing deadline, and the interaction between federal and provincial forms.
For Ontario technology and innovation companies, the key distinction is that the relief is tied to documented eligible R&D activity, not to ordinary capital investment. Equipment bought for commercial production, general operations or routine technology upgrades may not qualify simply because it is expensive or technically advanced.
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