federal budget 2024-25: major support for innovation and research and several tax reforms anticipated

The 2024-2025 federal budget aims to restore some affordability issues, especially for younger generations, with measures to accelerate new housing construction and reduce the impact of inflation on the cost of living.

This budget also includes important signals to grow the Canadian economy in specific sectors, such as artificial intelligence, while reviewing certain tax measures to stimulate innovation. However, despite the lofty ambitions of some financial backers, execution within the remaining term of the current government's mandate will be the biggest challenge in implementing this budget.

major investments in artificial intelligence and university research

In terms of innovation, the largest funding envelope in the 2024-2025 budget relates to artificial intelligence, with over $2.4 billion of targeted support for several measures, including $200 million to help regional development agencies in their support for start-ups, and the adoption of AI in strategic sectors. This measure received extensive media coverage before the budget was tabled on April 16 (see this La Presse article).

In addition to the investment in artificial intelligence, a number of measures in the research community - to the tune of $3.5 billion - will help develop new solutions to today's problems. In particular, increased core research grants from the federal granting councils(NSERC, CIHR and SSHRC) and enhanced graduate scholarships will help retain university know-how. However, the absence of additional financial support for bringing these ideas to market will not help solve Canada's problem of commercializing inventions resulting from university research.

We welcome the new capital cost allowance for R&D investments, as well as the intention to create an advisory council on science and innovation made up of leaders from academia, industry and the not-for-profit sector, to guide the setting of priorities and increase the impact of federal investments. Without having a similar mandate to the Quebec Innovation Council, let's hope this new advisory board can breathe fresh life into converting our research into commercial success.

adjustment of several tax and regulatory measures

Speaking of tax deductions, the 2024-2025 budget is packed with measures to change current business tax mechanisms and add advantageous deductions in key sectors, such as a tax credit for the cost of buildings used for important segments of the electric vehicle supply chain and expanded eligibility for the investment tax credit for clean technology manufacturing.

The two changes that will have the greatest impact on innovative companies are the reduction of the inclusion rate to 33.3% on up to $2 million in lifetime eligible capital gains, allowing entrepreneurs who sell their business to have more money; and the increase in the lifetime capital gains exemption on the sale of small business shares. Conversely, increasing the capital gains inclusion rate from one-half to two-thirds on capital gains over $250,000 could have an impact on venture capital investment.

Moreover, in addition to legislative change to create regulatory sandboxes to facilitate innovation, a number of consultations are planned in the coming months to accelerate the adoption of innovations, including a second round of consultations on reforming tax incentives for scientific research and experimental development, a first-ever Canadian survey of interprovincial trade, and consultations on government procurement. Once again, time will be our greatest enemy in bringing these reforms to fruition.

surgical financial support in key sectors

In addition to general investments in innovation, certain key sectors are benefiting from additional financial support, reflecting the government's direction. Innovative fintech companies will be delighted with the detailed action plan for an open banking system.

Some budget envelopes support the implementation of new initiatives such as theCanadian Space Agency's acceleration lunar exploration program, the Residential Construction Innovation and Technology Fund with NGenand the Regional Economic Growth through Innovation program run by regional economic development agencies(CED in Quebec), notably for housing innovation.

In addition, other envelopes provide financial support for beneficial initiatives in the cleantech sector, such as specialized intellectual property support for the Innovative Asset Collective and the Clean Growth Hub. Finally, in terms of national security, the Department of National Defence is keen to help support start-ups developing dual-use technologies essential to Canada's defence through the NATO Innovation Fund. We also welcome the government's financial support for Futurpreneur, to give young business owners the means to realize their ambitions.

Finally, the Government of Canada recognizes the investment made in recent years in strategies for entrepreneurship, for women entrepreneurs, for the Black community and for Aboriginals. Aboriginal entrepreneurship will receive a boost from main with the introduction of a loan guarantee program for Aboriginals, with a maximum envelope of $5 billion, as well as additional funding to renew Canada's investment in Aboriginal financial institutions.

the table is set, let's hope time will suffice

The Government of Canada's Budget 2024-2025 sets the table on pre-election announcements and aims to support the Canadian economy with targeted measures that build on several announcements in recent years that are beginning to be implemented.

However, this budget won't reassure innovative companies who were counting on existing programs that have, for the most part, seen their funding cut, such as Innovative Solutions Canada and the Strategic Innovation Fund, or even good ideas that have been relegated to an uncertain future, such as the launch of the Canada Innovation Corporation.