Shayan is one of the founding members of SRJ Chartered Professional Accountants. He works with US, UK, European, and Asian companies setting up Canadian R&D operations, advising on the structure of the Canadian entity, the SR&ED claim, and the transfer pricing position together. This guide was substantially rewritten for 2026 to reflect the Bill C-15 changes (royal assent March 26, 2026) that affect both the SR&ED program and Canada’s transfer pricing rules.

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Key Takeaways

There are three ways foreign companies can claim SR&ED (Canada): a wholly Canadian subsidiary, a minority interest in a Canadian-controlled private corporation (CCPC), or new under Bill C-15 through an Eligible Canadian Public Corporation (ECPC).

The Canadian subsidiary of a foreign parent receives a basic 15% non-refundable credit rather than an enhanced rate of 35% because the corporation is not Canadian-controlled.

A foreign company with a minority interest in a CCPC may pass through this enhanced 35% refundable credit to your CCPC for up to $6 million of expenditures (new limit from Bill C-15).

All SR&ED work must be done in Canada; up to 10% of salary spent on work outside of Canada by Canadian-resident employees is acceptable.

Bill C-15 also overhauled Canada’s transfer pricing rules, effective for tax years beginning after November 4, 2025, which affects how cross-border SR&ED arrangements have to be priced and documented.

Absolutely, foreign corporations have access to Canada’s SR&ED tax credit, albeit not under the same conditions that would apply to a Canadian-controlled entity. There are three possible scenarios that could occur: the foreign corporation having a wholly-owned Canadian subsidiary conducting the R&D, a minority stakeholder in a CCPC that is a foreign company, or the introduction of ECPC (Eligible Canadian Public Corporation) in Bill C-15 from March 2026 onwards.

The structure will be dependent on the amount of the parents’ Canadian R&D that they are willing to place within a Canadian-controlled entity and the size of the claim, as well as the overall tax position.

This guide walks through all three options, what each one yields under the post-Bill C-15 framework, and what’s changed for cross-border SR&ED in 2026.

The Three Routes at a Glance

Structure	Federal ITC rate	Refundable?	Best for
Foreign-owned Canadian subsidiary	15% basic ITC	Non-refundable, 20-year carryforward	Foreign parents who want a fully owned Canadian R&D arm and don’t need cash back
Foreign minority stake in a CCPC	35% enhanced ITC on first $6M, then 15%	Refundable up to the $6M limit	Foreign investors backing a Canadian-controlled R&D company
Eligible Canadian Public Corporation (ECPC)	35% enhanced ITC, gross-revenue phase-out	Refundable	Foreign-listed parents with a Canadian public sub doing serious R&D

All three require the SR&ED work itself to be performed in Canada by Canadian-resident staff (with a narrow 10% exception for work performed abroad).

Route 1: A Wholly-Owned Canadian Subsidiary

The simplest structure. The foreign parent incorporates a Canadian subsidiary, typically a federally incorporated corporation or a provincially incorporated one in Ontario, BC, or Alberta and the Canadian subsidiary employs the Canadian R&D staff, pays the suppliers, owns the resulting IP (or licenses it back to the parent), and files the SR&ED claim.

Because the parent is non-resident and controls the Canadian subsidiary, the subsidiary is not a Canadian-controlled private corporation. That matters: it cannot access the enhanced 35% refundable rate. It claims the basic 15% federal Investment Tax Credit, non-refundable, with any unused amount carried forward for up to 20 years against future Canadian tax payable.

The 15% credit reduces Canadian corporate tax payable in the year earned. If the subsidiary has limited Canadian-source income in early years, common for foreign-owned R&D arms in start-up mode, the credit accumulates as a carry-forward asset rather than producing immediate value.

This makes the route most useful for foreign parents who expect the Canadian subsidiary to become profitable, or who are using the structure for reasons beyond pure SR&ED economics (IP location, customer-facing presence, regulatory access).

Provincial layering. The Ontario Innovation Tax Credit, or OITC, is an 8% refundable Ontario credit and is not automatically unavailable merely because the claimant is foreign-owned or non-CCPC. However, the OITC is subject to a $3 million annual expenditure limit, shared among associated corporations, and that limit is reduced based on the prior-year federal taxable income and specified capital of the corporation and its associated corporations.

For a foreign-owned subsidiary, this means the OITC may require a broader group-level analysis and may be reduced or eliminated in practice. The Ontario Research and Development Tax Credit, or ORDTC, is a 3.5% non-refundable credit for eligible Ontario SR&ED expenditures and may also be available where the corporation has an Ontario permanent establishment and is not exempt from Ontario corporate income tax.

Quebec, British Columbia, and Alberta each have separate provincial R&D credits with their own eligibility rules, so the provincial position should be checked province-by-province based on where the work is performed.

Route 2: Foreign Minority Stake in a Canadian-Controlled Private Corporation

This is the route foreign investors take when they want to back Canadian R&D without taking control of the entity. The Canadian operating company is structured so that Canadian residents (founders, Canadian-resident investors, the operating team) hold majority control.

The foreign investor takes a minority equity position. Because Canadian residents continue to control the corporation, it remains a CCPC and continues to qualify for the enhanced 35% refundable SR&ED rate on up to $6 million of qualifying expenditures per year, the new Bill C-15 limit, up from $3 million.

The economics of this structure are significant. A qualifying CCPC can claim up to approximately $2.1 million per year as a refundable cash credit on the first $6 million of R&D spend (compared with roughly $1.05 million under the old limit).

On top of that, Ontario layers an additional 8% refundable Ontario Innovation Tax Credit, and 3.5% non-refundable Ontario Research and Development Tax Credit, for qualifying corporations. A foreign investor’s economic exposure to the Canadian R&D budget is therefore substantially less than the headline R&D number, because the credits flow through the CCPC and reduce its cash needs.

The control question is not casual. The CRA looks at both legal control (who has the voting majority) and a broader notion of de facto control, who actually directs the corporation’s affairs. A foreign investor with a 49% equity stake who also has board control, contractual veto rights over major decisions, or financing arrangements that put real authority over the company would compromise CCPC status.

The same applies to convertible debt and SAFE notes if the conversion math gives the foreign holder effective control. We work through the control-attribution analysis carefully for any cross-border investment into a Canadian CCPC.

Bill C-15 transfer pricing implications. Bill C-15 overhauled Canada’s transfer pricing rules, effective for tax years beginning after November 4, 2025. Cross-border transactions between non-arm’s-length parties now have to be analysed based not just on contractual terms but also on the actual economic substance of the relationship.

For a foreign minority investor who is also a customer, supplier, or licensor of the Canadian CCPC, that means cross-border pricing arrangements need to be defensible on substance grounds, not just on paper. Sloppy transfer pricing is the most common way the SR&ED benefit of this structure gets eroded under audit.

Route 3: Eligible Canadian Public Corporations (New Under Bill C-15)

A new option for larger groups. Bill C-15 extended the enhanced 35% refundable SR&ED rate to Eligible Canadian Public Corporations (ECPCs), Canadian public corporations whose shares are listed on a designated stock exchange and that aren’t controlled, directly or indirectly, by non-resident persons. Canadian-resident corporations whose shares are owned almost entirely by ECPCs also qualify.

The expenditure limit for an ECPC is determined by a gross-revenue test rather than by taxable capital. The full $6 million enhanced limit applies if the ECPC’s three-year average gross revenue is at or below $15 million, sliding down to zero at $75 million.

For most US, European, or Asian-headquartered groups, this route doesn’t directly apply because their Canadian operations sit under a foreign parent rather than a Canadian-listed company.

But for groups with a Canadian-listed subsidiary doing meaningful R&D; particularly in life sciences, cleantech, and certain dual-listed tech companies, this is a route that didn’t exist before March 2026. It’s worth checking whether any layer of the group structure could qualify before defaulting to the basic 15% rate.

Can SR&ED Work Be Performed Outside Canada?

The general rule is that SR&ED has to be performed in Canada to qualify. There’s one specific exception: work performed outside Canada by a Canadian-resident employee of the claimant can qualify, but only up to a cap of 10% of total SR&ED salaries and wages for the year.

Three details that catch foreign companies off guard:

The 10% cap is calculated on all SR&ED salaries, not on a per-employee basis. A single employee can work entirely abroad if their salary is under 10% of the total. Multiple employees can work partly abroad if the combined amount stays under the cap.

The work must be directly undertaken in support of SR&ED carried out in Canada. An employee abroad doing independent R&D unrelated to the Canadian program doesn’t qualify.

The employee must be a Canadian resident under the Income Tax Act (not just a Canadian citizen or someone on payroll in Canada). For travelling staff or recently relocated employees, residency status needs to be confirmed.

Work performed by contractors abroad does not qualify, regardless of the percentage. Only Canadian-resident employees of the claimant get the 10% treatment.

IP Ownership and Transfer Pricing

The structural questions that almost always come up alongside SR&ED for a foreign-parent group:

Where does the IP live?

When the Canadian entity performs SR&ED, the IP from that work needs a home. Two common arrangements: the Canadian subsidiary or CCPC owns the IP outright, or the foreign parent contracts the Canadian entity to do the R&D and the parent owns the resulting IP.

Both can support a valid SR&ED claim, but the structure affects ongoing transfer pricing, valuations, and exit planning. We work through this question at the entity-setup stage, not retroactively.

What does the Canadian entity charge the parent?

If the Canadian sub is doing R&D for the parent’s eventual benefit, the parent has to pay the sub on arm’s-length terms. Under Bill C-15’s revised transfer pricing rules (effective for tax years beginning after November 4, 2025), the CRA now considers not just the contractual terms but the actual economic substance of the relationship.

A “cost-plus 10%” intercompany agreement on paper won’t survive review if the substance shows the Canadian entity is bearing material R&D risk or developing valuable IP. Transfer pricing documentation needs to reflect reality.

The non-arm’s-length contract payment reduction.

If the Canadian sub receives a contract payment from a non-arm’s-length foreign party (typically the parent) for SR&ED work, that contract payment reduces the SR&ED-eligible expenditure base.

This is a long-standing rule that catches foreign-parent groups out. The economics often look different once the haircut is applied. It needs to be modelled before the structure is finalised.

Common Mistakes We See in Practice

A few patterns we see often enough in cross-border SR&ED work to flag directly:

Assuming a Canadian subsidiary of a foreign parent gets 35%: It doesn’t. The 35% enhanced rate is for CCPCs (and now ECPCs). A wholly-owned subsidiary of a US or UK parent is not Canadian-controlled, so the 15% basic rate applies. Founders sometimes hear “35% Canadian R&D credit” from non-specialist advisors and budget on that basis. The actual rate for this structure is 15%.

Underestimating de facto control on minority CCPC structures: Holding 49% of the equity is not the same as having minority control. If the foreign investor has board control, decision veto rights, or financing rights that effectively direct the corporation, the CRA can take the position that CCPC status is lost, and the CCPC-only benefits go with it, including the enhanced SR&ED rate.

Skipping the transfer pricing documentation: Under the new Bill C-15 rules, intercompany pricing has to be defensible on economic substance, not just contractual terms. Foreign-parent groups that previously got away with thin transfer pricing files are exposed now.

Forgetting the 10% foreign-salary cap: Groups with mobile engineering teams sometimes assume that any work by any Canadian employee qualifies. It doesn’t if the employee is performing the work abroad and the salary share exceeds 10% of the total SR&ED salary base.

Filing under the wrong structure entirely: We’ve seen US parents file their Canadian subsidiary as if it were a CCPC, claim the 35% rate, and get reassessed two years later for the difference plus interest. The control test isn’t a matter of opinion, it’s defined in the Income Tax Act, and the CRA applies it strictly.

Case Study

A US Software Company Choosing Between Two Canadian Structures

A US-headquartered software company with Series A funding was scaling its engineering team into Toronto. The plan was to grow the Canadian engineering function from 8 staff to 30 over 18 months.

The founders’ first instinct, on the advice of their US accountant, was to set up a wholly owned Canadian subsidiary and claim SR&ED on the full Canadian engineering budget.

Problem

The wholly owned subsidiary route would give the company the 15% non-refundable rate. With Canadian engineering costs projected at roughly $4.5 million per year, that produces a credit of around $675,000; useful, but not cash, and only valuable to the extent the Canadian sub generates Canadian tax payable to offset.

In the structure as planned, the sub was a pure cost centre billing the US parent on cost-plus, so taxable income was minimal. The credit would have accumulated as a carry-forward, not as immediate cash.

How we approached it

We modelled a second structure: incorporate the Canadian operating company with majority Canadian-resident ownership (the lead engineer who relocated from the US, and a Canadian-resident co-founder), with the US parent taking a minority equity position structured to avoid de facto control. The Canadian entity becomes a CCPC.

The same $4.5M of R&D spend, under the new Bill C-15 limit, generates up to ~$1.575M in refundable federal credit on the first $4.5M of qualifying expenditure (well under the new $6M cap), plus Ontario layering for qualifying expenditures. Critically, the credit is refundable, cash back to the company, not a deferred asset.

What we learned

The CCPC structure required careful work on shareholder agreements, board composition, and conversion mechanics on the US parent’s convertible note, to ensure the de facto control test was clearly met by the Canadian residents. We coordinated with the company’s US counsel on the parallel US tax implications.

The structure had a higher set-up cost than a simple wholly-owned sub, but the year-one refundable credit difference more than paid for it. The principle generalises: for foreign-backed Canadian R&D, the structuring decision at the entity setup stage is usually worth more than any individual SR&ED claim optimisation later.

How SRJ CPA Helps Foreign Companies With SR&ED

Cross-border SR&ED claims aren’t just bigger versions of domestic claims, they sit at the intersection of structuring, transfer pricing, IP ownership, and the SR&ED claim itself. As a full-service CPA firm, we work through all four together rather than treating the claim as a one-off filing.

SRJ Chartered Professional Accountants is a Toronto and Mississauga-based CPA firm serving Canadian corporations and the Canadian arms of foreign-parented groups across tech, manufacturing, biotech, and professional services.

We’ve worked with US, UK, European, and Asian companies setting up Canadian R&D operations, advising on the entity structure, the SR&ED claim, the transfer pricing position, and the ongoing corporate tax filings as a single integrated engagement.

Contact SRJ CPA today.

Frequently Asked Questions

Can a foreign company claim SR&ED in Canada?

Indirectly, yes. A foreign company cannot file an SR&ED claim itself, but it can access the credit through a Canadian entity, either a wholly-owned Canadian subsidiary, a minority position in a Canadian-controlled private corporation (CCPC), or, under the new Bill C-15 rules, certain Eligible Canadian Public Corporations (ECPCs).

What SR&ED rate does a foreign-owned Canadian subsidiary get?

The basic 15% federal Investment Tax Credit, non-refundable. The enhanced 35% refundable rate is restricted to Canadian-controlled private corporations and now to Eligible Canadian Public Corporations under Bill C-15. A subsidiary controlled by a foreign parent is not Canadian-controlled, so the 15% rate applies. Unused credits carry forward for up to 20 years.

How can a foreign company access the 35% enhanced SR&ED rate?

By holding a minority position in a Canadian-controlled private corporation, with Canadian residents retaining both legal and de facto control of the Canadian entity.

The CCPC then claims the 35% refundable credit on up to $6 million of qualifying expenditures per year (the new Bill C-15 limit). The control analysis is strict — minority equity alone isn’t enough if the foreign investor has effective decision-making authority.

Does SR&ED work performed outside Canada qualify?

Only in narrow circumstances. Up to 10% of total SR&ED salaries and wages can come from work performed outside Canada, but only by Canadian-resident employees of the claimant, and only if the work is in direct support of SR&ED carried out in Canada. Work performed by foreign contractors or by foreign-resident employees does not qualify regardless of where the cost sits.

What changed for foreign companies under Bill C-15?

Three things. First, the enhanced refundable expenditure limit doubled from $3M to $6M, which directly benefits CCPCs with foreign minority investors. Second, Eligible Canadian Public Corporations can now access the enhanced 35% refundable rate for the first time.

Third, Bill C-15 overhauled Canada’s transfer pricing rules effective for tax years beginning after November 4, 2025, which affects how cross-border SR&ED arrangements have to be priced and documented.

Does owning IP in the foreign parent affect SR&ED eligibility?

The Canadian entity can perform SR&ED on behalf of the foreign parent; the work doesn’t have to result in IP owned by the Canadian entity. But the arrangement affects transfer pricing and the SR&ED calculation.

Contract payments from a non-arm’s-length foreign party reduce the SR&ED-eligible expenditure base, which often changes the economics. The IP question should be settled at the entity setup stage, not retroactively.

What is the new “ECPC” route under Bill C-15?

Eligible Canadian Public Corporations are Canadian public corporations whose shares are listed on a designated stock exchange and aren’t controlled by non-residents.

Under Bill C-15, ECPCs can now claim the enhanced 35% refundable SR&ED rate, with the $6M expenditure limit determined by a gross-revenue phase-out scale. Canadian-resident corporations almost entirely owned by ECPCs also qualify.

Are there transfer pricing risks specific to cross-border SR&ED?

Yes, and they’re larger under Bill C-15 than they were before. The new transfer pricing rules require cross-border non-arm’s-length transactions to be analysed on economic substance, not just contractual terms. Foreign-parent groups whose intercompany pricing doesn’t reflect the actual risk and value the Canadian R&D entity bears are exposed to adjustments that can erode the SR&ED benefit.