Boosting R&D and productivity and investing in AI and in a net-zero economy

The new federal budget, Fairness for Every Generation, was published by the Ministry of Finance on April 16, 2024, following the speech by Finance Minister Chrystia Freeland.

In the context of lowering inflation rates and small GDP growth, with its budget, the federal government aims to promote economic growth for every generation and investments in a net-zero economy.

FI-group offers you an overview of the main changes related to R&D and innovation proposed with this new economic plan.

1 – SR&ED program under review to boost R&D and IP retention

The new economic plan did not lead to major changes in the methods for allocating tax credits for SR&ED tax credits. The SR&ED tax measures therefore still represent 35% of eligible R&D expenditures for SMEs and 15% for large corporations.

However, in 2022, the government announced the intent to undertake a review of the program, to ensure that it is effective in encouraging R&D that benefits Canada. In early 2024, the government launched consultations to explore cost-neutral ways to enhance the SR&ED program to better support innovative businesses and drive economic growth. They announced plans to hold a second phase of consultations in the 2024 budget, seeking input on specific policy parameters and the eligibility of Canadian public companies for enhanced credit.

Therefore, budget 2024 proposes to allocate $600 million over four years, starting in 2025-26, with an additional $150 million per year for ongoing enhancements to the SR&ED program.

At the beginning of 2024, the government also launched consultations on creating a patent box regime to encourage the development and the retention of intellectual property (IP) in Canada. These consultations closed on April 15, 2024, and submissions are still under review.

2 – Artificial Intelligence (AI) as a Major Player in Canada Development

Canada investment in AI has achieved $2 billion since 2017. Keeping the momentum, the government decided to invest another $2.4 over the next 5 years to sustain Canada position at the vanguard of the AI development in the world, including:

• $2 billion to launch an AI Compute Access Fund and Canadian AI Sovereign Compute Strategy, aiding Canadian researchers and businesses in accessing computational power.
• $200 million to boost AI start-ups and accelerate AI adoption in sectors like agriculture, healthcare, and manufacturing.
• $100 million for the National Research Council’s AI Assist Program to aid small- and medium-sized businesses in deploying new AI solutions.
• $50 million (over four years, starting in 2025-26) to support workers impacted by AI, particularly in creative industries, through skills training provided by the Sectoral Workforce Solutions Program.

In addition, the Canadian government is dedicated to fostering positive AI innovation and its responsible adoption. The 2024 Budget proposes $50 million over five years to establish the AI Safety Institute of Canada, $5.1 million in 2025-26 for the AI and Data Commissioner Office to enforce the proposed Artificial Intelligence and Data Act and $3.5 million over two years to enhance Canada’s leadership in the Global Partnership on Artificial Intelligence.

Finally, the Budget 2024 plans to provide $6.7 million over five years, starting in 2024-25, to Transport Canada to the Pre-Load Air Cargo Targeting Program, powered by cutting-edge AI.

3 – Incentivizing the Adoption of Cutting-Edge Technologies

To foment the adoption of cutting-edge technologies, the new budget will allow businesses to immediately deduct the full cost of investments in patents, data network infrastructure equipment, computers, and other data processing equipment that are acquired and put to use on or after Budget Day and before January 1, 2027.

4 – Increase in Research Grants Budgets

Canada has a longstanding history of contributions to innovation, research and development through grants awards through its main governmental agencies such as the Natural Sciences and Engineering Research Council (NSERC), the Canadian Institutes of Health Research (CIHR), and the Social Sciences and Humanities Research Council (SSHRC).

Following previous investments, the budget reserved $1.8 billion to be spent in a 5-year period to foster core research grant funding and support Canadian researchers that will be administrated and distributed by the NSERC, the CIHR and the SSHRC.

To improve federal grant coordination, the government will create a new research funding organization and an advisory Council on Science and Innovation aiming to guide priority setting and increase the impact of these significant federal investments.

5 – New Tax Credits Related to Clean Economy

The 2024-2025 budget announces the government plans to advance the implementation, the enhancement, or the creation of new tax credits to foster taxpayer investment in clean economy. These Major Economic Investment Tax Credits are:

• Carbon Capture, Utilization, and Storage investment tax credit
• Clean Technology investment tax credit
• Clean Hydrogen investment tax credit
• Clean Technology Manufacturing investment tax credit
• Clean Electricity investment tax credit
• The EV Supply Chain investment tax credit

These investment tax credits will be available retroactively from their respective into force dates. The Canada Revenue Agency will administer them, with support from Natural Resources Canada which will provide expert technical advice on engineering and scientific matters related to these credits and support the administration of certain investment tax credits with the CRA.

6 – Attracting Investment for a Net-Zero Economy

In addition to the Major Economic Investment Tax Credits, the government plans additional investments to attract investment aiming at a net-zero economy in Canada by 2050. Therefore, Budget 2024 announces:

• The Canada Growth Fund’s development of an expanding range of Carbon Contracts For Difference (CCFDs) offerings tailored to different markets, while exploring ways to broaden its approach. The Budget 2024 states that the Canada Growth Fund has around $6 billion remaining to continue issuing all forms of CCFDs and carbon offtake agreements.
• The government’s intention to restructure the Clean Fuels Fund to expedite funding and extend it for an additional four years until 2029-30. With this extension, a total of $776.3 million will be available from 2024-25 to 2029-30 to support clean fuel projects.
• Providing $6.1 million over two years, starting in 2024-25, for the Clean Growth Hub, the federal government’s main source of information and advice on federal funding and other supports for clean technology projects in Canada. The Clean Growth Hub supports 1,100 companies and organizations every year.

7 – Increase of Regional Economic Growth through Innovation (REGI) Budget

The Regional Economic Growth through Innovation (REGI) is a federal government program that aims to help businesses and innovators grow to fuel economic growth and create good middle-class jobs. REGI allows businesses to access funding to scale-up, implement new technologies, improve productivity, and find new markets, helping to develop prosperous and inclusive communities across the country. The new budget proposes an increase of $158.5 million over two years to REGI program.

The FI-group team is available for any further information you may have.
Feel free to contact us!