SR&ED for the Aerospace & Aeronautics Industry: R&D Tax Credits and Incentives
Canada's aerospace and aeronautics industry continues to advance through developments in aircraft design, propulsion systems, advanced materials, avionics, automation and manufacturing technologies. Aerospace manufacturers, component suppliers, engineering firms and aviation technology developers regularly encounter complex technical challenges as they work to improve aircraft performance, safety, reliability, efficiency and manufacturing capabilities.
Canada's Scientific Research and Experimental Development (SR&ED) tax incentive program provides tax incentives for eligible research and development activities undertaken to achieve scientific or technological advancements. Aerospace and aeronautics businesses developing new aircraft components, experimenting with advanced manufacturing processes or investigating unresolved engineering challenges may qualify for SR&ED tax credits when their work meets the program's eligibility requirements.
What Type of Activities and Technological Challenges May Qualify?
- Aircraft component design and development: Experimenting with new structural components, assemblies or mechanical systems to overcome challenges involving strength, durability, weight, dimensional accuracy or performance.
- Aerodynamics and airflow optimization: Investigating new aircraft geometries, aerodynamic configurations or airflow management methods to address unresolved challenges involving drag, lift, turbulence or aerodynamic stability.
- Propulsion and engine technologies: Developing or experimenting with propulsion components, combustion systems, electric propulsion technologies or engine configurations to overcome technical limitations involving efficiency, thermal performance or reliability.
- Advanced materials and lightweight structures: Investigating new composites, alloys, coatings or manufacturing methods to improve structural strength, weight, fatigue resistance or performance under demanding operating conditions.
- Avionics and electronic systems: Developing or improving aircraft electronics, sensors, communication systems, navigation technologies or embedded software to overcome unresolved technical challenges.
- Aerospace manufacturing process improvements: Machining, forming, welding, additive manufacturing or composite fabrication methods to address technological uncertainties involving precision, consistency or material performance.
- Thermal management and environmental performance: Investigating heat transfer, thermal expansion, material degradation or component reliability under extreme temperatures, pressures or operating conditions.
- Flight control and autonomous systems: Developing new control algorithms, sensor integration methods or autonomous navigation technologies to address unresolved technical challenges involving system performance or reliability.
- Production scalability and process reliability: Investigating technical challenges when transitioning aerospace components or manufacturing processes from experimental development to commercial production.
What Aerospace & Aeronautics costs may qualify for SR&ED?
Once a project has been identified as potentially eligible for SR&ED, the next step is determining which expenditures are associated with the eligible R&D work. Depending on the nature of the project, potentially qualifying expenditures can include employee labour, materials, contractors, specialized equipment and certain lease or capital expenditures.
Labour
Materials
Contractors and Specialized Services
Lease and Capital Expenditures
Recent changes to the SR&ED program have made certain qualifying capital expenditures incurred after December 15, 2024, eligible for SR&ED.
If your project involves these types of activities and costs, it may be worth assessing whether the work and associated expenditures qualify for SR&ED.
Not all aerospace and aeronautics engineering projects, aircraft design improvements, component developments, or manufacturing process enhancements qualify for SR&ED. To be eligible, activities must address scientific or technological uncertainty, involve a systematic investigation or search through experimentation or analysis, and seek to achieve scientific or technological advancement. Routine aircraft maintenance, standard engineering practices, minor component modifications, implementation of established technologies, and regulatory compliance testing do not automatically qualify for SR&ED incentives.
Dive deeperOther Funding Opportunities for Aerospace & Aeronautics Businesses
Other forms of government funding for aerospace & aeronautics businesses are available too. Depending on the project, company, location and activities involved, additional funding may be available through federal, provincial and regional programs.
Potential sources may include:
NRC IRAP (Industrial Research Assistance Program):
Provides expert advisory services and potential financial support to eligible Canadian small and medium-sized businesses developing innovative technologies, products and processes. Aerospace businesses may qualify for assistance with aircraft component development, avionics, advanced materials, propulsion technologies, manufacturing innovation and technical R&D.
Strategic Innovation Fund (SIF):
Provides potential support for eligible large-scale innovation, industrial transformation and business investment projects. Aerospace manufacturers and technology developers undertaking significant investments in advanced manufacturing, next-generation aircraft technologies, sustainable aviation or other strategic industrial capabilities may qualify under applicable funding opportunities.
NGen (Next Generation Manufacturing Canada):
Supports collaborative advanced manufacturing projects involving innovative production technologies, automation, robotics and smart manufacturing systems. Aerospace manufacturers and suppliers may benefit from opportunities supporting precision manufacturing, additive manufacturing, advanced materials processing, automated assembly and innovative aerospace production technologies.
Mitacs Accelerate:
Supports collaborative research internships connecting businesses with academic researchers to address technical and innovation challenges. Potential applications include aerodynamics, propulsion systems, avionics, advanced materials, aerospace manufacturing processes and aircraft component development.
NSERC Alliance Grants — Industry-Academic Research:
Supports eligible collaborative research projects involving Canadian academic researchers and partner organizations. Aerospace and aeronautics businesses may participate in research involving aircraft structures, propulsion technologies, advanced materials, avionics, autonomous systems and emerging aerospace technologies.
Additional federal, provincial and regional programs may also be available depending on the company's location and project objectives.
Government funding programs change frequently. Eligibility, application windows and available funding should be reviewed based on the specific project and timing. Funding programs can have specific eligibility requirements, application periods and eligible-cost rules. In some cases, SR&ED and government funding may interact, so businesses should consider their available incentives when planning and documenting a project.
How EVAMAX Can Help
Navigating Canada's tax incentives and grants can be complex. A single project may involve R&D activities, capital investment, manufacturing, commercialization and expansion, each of which may have different eligibility requirements.
EVAMAX can help you assess your project and identify the SR&ED, tax credit, grant and funding opportunities that may be available to your business.