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

The 2024–2025 federal budget aims to address certain accessibility issues, especially for younger generations, with measures to accelerate the construction of new housing 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 certain financial supports, execution in the remaining term of the current government will be the biggest challenge for the implementation of this budget.

In terms of innovation, the largest funding envelope in the 2024-2025 budget is for artificial intelligence, with more than $2.4 billion in targeted support for several measures, including $200 million to help regional development agencies support start-ups 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 in La Presse).

In addition to investing in artificial intelligence, several measures in the research community—totaling $3.5 billion—will help develop new solutions to today's problems. In particular, increased basic research grants from federal funding agencies (NSERC, CIHR, and SSHRC) and enhanced 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 from university research.

We welcome the new capital cost allowance for research and development investments, as well as the commitment to create a science and innovation advisory council composed of leaders from academia, industry, and the non-profit sector to guide priority setting and increase the impact of federal investments. Without having a mandate similar to that of the Quebec Innovation Council, let us hope that this new advisory council will be able to breathe new life into our research and turn it into commercial success.

Speaking of tax deductions, the 2024-2025 budget is full of measures aimed at changing the current corporate taxation mechanisms and adding 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 the expansion of eligibility for the investment tax credit for the manufacture of clean technologies.

The two changes that will most affect innovative businesses are the reduction of the inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible capital gains, allowing entrepreneurs who sell their businesses to have 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 half to two-thirds on capital gains over $250,000 could have an impact on venture capital investment.

In addition to legislative changes to establish "regulatory sandboxes" to facilitate innovation, several 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, the first-ever Canadian survey on interprovincial trade, and consultations on government procurement. Once again, time will be the biggest enemy in completing these reforms.

In addition to general investments in innovation, certain key sectors receive additional financial support that reflects government policy. It should also be noted that innovative fintech companies will welcome the detailed action plan for the implementation of an open banking system.

Certain budget allocations support the implementation of new initiatives such as theCanadian Space Agency's Lunaracceleration Program, the Residential Construction Innovation and Technology Fund with NGen, and the Regional Economic Growth through Innovation program of regional economic development agencies (DEC in Quebec), 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 Innovative Asset Collective and the Clean Growth Hub. Finally, in the area of national security, the Department of National Defense wants to help support start-ups that are developing dual-use technologies essential to Canada's defense through the NATO Innovation Fund. We also welcome the government's financial support for Futurpreneur to empower young business owners to achieve their ambitions.

Finally, the Canadian government recognizes the investment made in recent years in strategies for entrepreneurship, particularly those targeting women entrepreneurs, the Black community, and Indigenous peoples. Indigenous entrepreneurship will also receive a main 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 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 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 reduced, such as Innovative Solutions Canada and the Strategic Innovation Fund, when it is not simply a case of good ideas being relegated to an uncertain future, such as the launch of the Canada Innovation Corporation.