Experience or know-how in valuating companies earning with SR&ED in Canada?

March 02, 2026

by a searcher from York University in Toronto, ON, Canada

Hi, Im looking at a company that collects a large portion of profits, steadily, from SR&ED credits in Canada. I'm concerned about the valuation, as any government or program change can drastically alter the margins of this company. Anyone with experience or knowledge in valuations in this space?

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Reply by a professional
from University of Saskatchewan in Calgary, AB, Canada

Hi Hadassah, Lawyer here. SR&ED program is a longstanding program and backbone of the tech ecosystem in Canada so pretty unlikely the government would make it less attractive so I am not sure you have a ton of risk there. You will definitely want to be clear as to why your target is getting the refunds though since SR&ED is a refund for investment. Consequently, if that investment or the specific R&D activity ceases post-acquisition, the credit may not continue, which should be reflected in your margins. Furthermore, because SR&ED claims are frequently subject to audit, it is highly advisable to ensure your purchase agreement includes robust tax indemnities to account for potential adjustments after you takeover. I would be happy to chat more, I also have worked with valuators before that have experience in the software/tech space and happy to provide a referral there too. You can reach me at redacted

Reply by a searcher
from Simon Fraser University in Vancouver, BC, Canada

If this is a competitive process, my experience is that SRED is typically fully reflected in EBITDA, with no discount, and valued at the same multiple as the rest of the earnings stream. It becomes more nuanced at higher EBITDA levels, as the marginal SRED benefit declines for larger companies, which can affect how buyers underwrite sustainability. The real friction usually shows up in working capital and timing. If SRED is included in EBITDA, the expectation is that the buyer receives the benefit in year one. However, sellers often take the position that SRED relating to R&D incurred during their ownership should accrue to them. From my perspective, if SRED is embedded in the EBITDA being valued, then I would expect to receive the associated cash in year one, regardless of when the R&D expense was incurred. Otherwise, the earnings being capitalized and the cash being transferred are misaligned.

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