Budget 2026 and Your Business: Expanded Incentives
November 9, 2026
Sector:
Markham, Canada, November 6th, 2026 –
The Honorable François-Philippe Champagne, Minister of Finance, tabled the 2026 budget on November 5th. The budget says a lot about where the government’s attention is: a more independent economy, more private investment, more Canadian ownership of what gets built, and a plan to balance day-to-day operating spending against revenue by 2027-28, a year earlier than previously promised. The budget brings: a wider SR&ED program, permanent first-year write-offs for most equipment, and a new capital gains exemption for founders, employees and investors.
SR&ED moves past the prototype
For as long as we have been preparing SR&ED claims, the program has stopped at the lab door. Once the technological uncertainty is resolved, the work that follows is treated as commercial. That is exactly where many Canadian products stall: the engineering is finished, but the test lab and the patent office still need to be paid before a single unit ships.
The 2026 budget proposes to bring two kinds of commercialization costs into the program. The first is the tests, technological validations and studies needed to meet regulatory requirements for the initial approval or certification of a new product or process. These would be claimed in the usual SR&ED categories: salaries, materials, contracts, overhead, and machinery and equipment. The second is the cost of registering and maintaining intellectual property protection, covering patents, certificates of supplementary protection, plant breeders’ rights and copyrighted software, whether protected in Canada or under equivalent foreign law.
The Government of Canada has budgeted $930 million over five years for the change, and $235 million a year after that. It applies to taxation years that begin on or after December 1, 2026, and the CRA has been asked to publish sector-specific guidance.
Three important details:
(1) The underlying project still has to be SR&ED. The new costs attach to a project that qualifies under today’s rules. A certification program for a product that was never developed through eligible SR&ED earns nothing, however expensive the testing.
(2) Re-certification after a supplier change, annual surveillance audits and routine compliance testing fall outside the proposal as written. We expect the line between initial and ongoing to be where a good share of CRA review effort lands.
(3) While administrative fees payable to an IP office outside Canada would be eligible, costs of supporting activities, such as those in respect of preparing an application, would be eligible only if those activities are conducted in Canada.
From the engineering side, certification is rarely a single pass. A failed electromagnetic compatibility or pressure test sends the design back for changes, and that redesign work may already qualify under the existing rules. The new measure helps most where the records show the chain clearly: which project produced the product, which standard it was tested against, and why that test stood between the company and its market.
The Productivity Mega Deduction: write it off in year one
The government announced the Productivity Mega Deduction at the Canada Investment Summit on September 15 and released draft legislation the same day. The budget confirms that it will proceed. For most depreciable property acquired on or after September 15, 2026, a business could deduct up to 100% of the cost in the year the asset becomes available for use, and the measure would be permanent. Finance estimates that it covers more than 65% of business investment, lowers Canada’s marginal effective tax rate on new investment from 13% to 6.4%, and will cost $36 billion over five years.
How it fits with SR&ED depends on how each piece of equipment will be used, which is decided, and should be documented, when it is bought:
| Equipment | SR&ED treatment | With the Mega Deduction |
|---|---|---|
| Used 90% or more of its operating time for SR&ED in Canada, such as test rigs and lab instruments | Fully deductible through the SR&ED pool, plus a 35% credit for a qualifying CCPC, 40% of which is refundable | No change: it is already 100% deductible |
| Used more than 50% but less than 90% for SR&ED, such as a pilot line or shared test equipment | Shared-use equipment: a credit on up to half its cost, earned over two years, with the cost otherwise written off at regular CCA rates | Up to 100% written off in year one, on top of the partial credit. This is where most of the new value sits |
| Used mainly for production once the product works | No SR&ED credit; regular CCA rates | Up to 100% written off in year one |
A few things to consider when reviewing the interplay between the Mega Deduction and SR&ED. First, SR&ED capital treatment depends on intended use at the time of purchase: the asset must be intended for use 90% or more of its operating time for SR&ED in Canada. Documenting that intent when the equipment is purchased supports the claim.
Second, the two deductions follow different timing rules. Under the draft legislation, the Mega Deduction can be claimed only in the first year the asset is available for use, and any unclaimed amount is deducted at regular CCA rates in later years. The SR&ED pool can be deducted in the current year or carried forward indefinitely.
When determining which assets would be best to file under SR&ED versus the Mega Deduction, we advise working with a firm with both SR&ED and accounting experts to weigh the options accordingly.
What we would do before your next year-end
Check when your next fiscal year begins. If it begins on or after November 5, 2026, certification and patent costs in that year can qualify, which may affect when you schedule that work.
Tie certification and patent work back to a project now. Record which SR&ED project each test or filing came from. Ask your IP firm to break its invoices out between work done in Canada, foreign associates’ fees, government filing fees, maintenance fees and any enforcement work. Rebuilding that link from emails two years later is expensive and rarely convincing.
Re-run the capital plan. Note when each asset will actually be available for use, not just when it is purchased, and model the write-off against your tax credit position before deciding how much to claim.
Where Kreston GTA LLP comes in
Budgets are written measure by measure, but businesses don’t experience them that way. The SR&ED change, the write-off and the exemption all touch the same tax return, the same ownership structure, and often the same patent or piece of equipment. We look at them together.
Our SR&ED and government incentives team brings accounting and engineering backgrounds to the same file. We can identify which of your projects will lead to a certification or patent, set up the records the CRA will ask for, model the cash effect of the Productivity Mega Deduction against your tax credits, and test the ownership facts that decide the 35% SR&ED rate and access to the coming tax incentives.
If you would like to walk through what the 2026 budget means for your company before your next fiscal year starts, we would be glad to sit down with you.
Author
Dennis Ma
dennis.ma@krestongta.com | 905.474.5593 ext. 117
Senior Manager, SR&ED and Government Incentives
About Kreston GTA
Kreston GTA is a client-focused and forward-thinking accountancy firm; we understand that building a relationship based on trust is essential. We truly believe that people do business with people they know, like, and trust. That’s why our approach is always personalized. We invest the time to get to know you, understand your goals, and provide solutions that help you succeed. We provide a full suite of accountancy and financial services, including personal and corporate taxation, audits, consulting, SR&ED & other government incentives, and more.
