The 2024–2025 federal budget aims to address certain affordability issues, particularly for younger generations, through measures designed to accelerate the construction of new housing and reduce the impact of inflation on the cost of living.
This budget also includes significant measures to foster growth in the Canadian economy in specific sectors, such as artificial intelligence, while revising certain tax measures to stimulate innovation. However, despite the lofty ambitions behind certain financial measures, executing them during the remainder of the current government’s term will be the greatest challenge in implementing this budget.
major investments in artificial intelligence and university research
In terms of innovation, the largest funding allocation in the 2024–2025 budget is for artificial intelligence, with more than $2.4 billion in targeted support for several initiatives, including $200 million to help regional development agencies support startups, and the adoption of AI in strategic sectors. This measure received significant media coverage prior to the budget’s release on April 16 (see this article from La Presse).
In addition to investment in artificial intelligence, several initiatives in the research sector—totaling 3.5 billion—will help develop new solutions to today’s problems. In particular, the increase in basic research grants from federal granting councils (NSERC, CIHR and SSHRC) and increasing graduate and postgraduate scholarships will help retain academic expertise. However, the lack of additional financial support for bringing these ideas to market will not help solve Canada’s problem with commercializing inventions resulting from university research.
We welcome the new capital cost allowance for investment in research and development, as well as the commitment to establish an advisory council on science and innovation that will be composed of leaders from academia, industry, and the nonprofit sector, to guide the setting of priorities and maximize the impact of federal investments. Without a mandate similar to that of the Québec Innovation Council, let's hope this new advisory board can bring a breath of fresh air to help turn our research into commercial successes.
adjustments to several tax and regulatory measures
Speaking of tax deductions, the 2024–2025 budget is full of measures aimed at changing the current corporate tax system and adding beneficial deductions in key sectors, such as a tax credit for the cost of buildings used in key segments of the electric vehicle supply chain and the expansion of eligibility for the investment tax credit for the manufacture of clean technologies.
The two changes that will most affect innovative companies involve reducing the inclusion rate to 33.3% on a maximum lifetime amount of $2 million in eligible capital gains, allowing entrepreneurs who sell their businesses to keep more money; and the increase in the cumulative capital gains exemption on the sale of small business shares. Conversely, the increase in the capital gains inclusion rate from one-half to two-thirds on capital gains exceeding $250,000 could have an impact on venture capital investment.
Furthermore, in addition to a legislative amendment to establish “regulatory sandboxes” to facilitate innovation, several consultations are expected in the coming months to accelerate the adoption of innovations, including a second round of consultations on the reform of tax incentives for scientific research and experimental development, Canada’s first-ever survey on interprovincial trade, and consultations on government procurement. Once again, time will be the biggest obstacle to completing these reforms.
financial support for surgical procedures in key sectors
In addition to general investments in innovation, certain key sectors receive additional financial support, which reflects government priorities. It is also worth noting that innovative companies in fintech will welcome the detailed action plan for establishing an open banking system.
Certain budget allocations are set aside to support the implementation of new initiatives such as the Lunar Exploration Acceleration Program of theCanadian Space Agency, the Fund for Innovation and Technology in Residential Construction, with NGen, and the program for Regional Economic Growth Through Innovation regional economic development agencies (DEC (Québec), particularly for innovation in housing.
In addition, other funding programs provide financial support for beneficial initiatives in the clean technology sector, such as specialized intellectual property support from the Innovation Asset Consortium (Innovative Asset Collective) and the A Hub for Clean Growth. Finally, with regard to national security, the Department of National Defense wishes to help support startups that are developing dual-use technologies essential to Canada’s defense through the NATO Innovation Fund. Let's also acknowledge the government's financial support for Futurepreneur to empower young business owners to achieve their ambitions.
Finally, the Government of Canada recognizes the investments made in recent years in strategies for entrepreneurship, as well as those targeting women entrepreneurs, the Black community, and Indigenous peoples. Indigenous entrepreneurship will also receive a significant boost from the government through the implementation of a loan guarantee program for Indigenous peoples, with a maximum budget of $5 billion, as well as additional funding to renew Canada’s investment in Indigenous financial institutions.
The table is set; let's hope there's enough time.
The Government of Canada’s 2024–2025 budget sets the stage for pre-election announcements and aims to support the Canadian economy with targeted measures that build on several announcements made in recent years that are now beginning to be implemented.
However, this budget will not reassure innovative companies that were counting on existing programs—most of which have seen their funding cut, such as Innovative Solutions Canada and the Strategic Innovation Fund— or, in some cases, have simply been shelved with an uncertain future—such as the launch of the Canada Innovation Corporation.