Federal Budget 2022: Key Measures and New Funding for Canadian Innovators

Deputy Prime Minister and Finance Minister Chrystia Freeland unveiled the 2022 Federal budget on April 7, 2022. Titled “A Plan to Grow Our Economy and Make Life More Affordable,” the budget announces a number of changes to existing programs and new initiatives to fund the development of green energy, the circular economy and Canadian innovation.

The following article offers a brief overview of some of the highlights of the 2022 Federal budget and the impact these new measures may have on innovative Canadian companies in the years to come.

Updates to the SR&ED Tax Credit 

After nearly three years of no major changes to the federal Scientific Research & Experimental Development tax credit program – the last significant modifications date back to 2019 – Budget 2022 officially announced that the program will be undergoing a formal review to find out if changes to the eligibility criteria are necessary. The review will also consider the possibility of implementing a “patent box” regime to encourage the development of innovative IP in Canada. A “patent box” essentially allows income earned from IP to be taxed at a lower rate than other business income, encouraging innovation.

This review was just announced, so we cannot be sure of its impact on the program at present. However, there are reasons to believe that any changes may expand access to the program and program funding, rather than restricting it. This is because expanding access to SR&ED was part of the Liberals platform for the 2021 election.

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Creation of an Innovation and Investment Agency

Budget 2022 announces the creation of an operationally independent federal innovation and investment agency, with a planned budget of $1 billion for its first five years of operation – starting in 2022-3. Additional details have yet to be announced, but the agency’s mandate will generally be to work with existing and new businesses in crucial industries and help them make investments necessary for their growth and increase their competitiveness.

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Creation of the Canada Growth Fund

This brand-new investment fund aims to attract private capital to Canada to encourage growth in strategic sectors and fund initiatives related to key economic goals like emissions reduction, low carbon technology development, supply chain restructuring, the development of the primary resource sector, and more. Funding will take a variety of forms, including equity, debt financing, and loan guarantees.

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Introduction of a new Investment Tax Credit for Carbon Capture, Utilization and Storage

A new refundable tax credit, effective for projects starting on or after January 1, 2022, will be introduced to offset the cost of carbon dioxide capture and storage equipment purchases. This new credit’s rates will vary between 37.5% and 60% until 2030.

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Additional Funding for the Development of Semiconductors

Innovation, Science and Economic Development Canada will receive $45 million over 4 years to engage in various activities aiming to support semiconductor projects and strengthen Canada’s place in the sector.

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Additional Funding for Canada’s Superclusters

The budget plans for an additional $750 million in funding over 6 years for the 5 innovation superclusters to support projects and foster public-private collaboration in key economic sectors. The superclusters have also been officially renamed Global Innovation Clusters moving forward.

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Read our article dedicated to the Supercluster initiative to find out more about each cluster and their programs.

Making the SME lower tax rate more accessible

Canadian small businesses already benefit from the reduced federal tax rate of 9% on their first $500,000 of taxable income, a 6% tax cut from the general 15% federal corporate tax rate. The current rule only allows businesses to access this lower corporate tax rate as long as their level of capital employed in Canada stays under $15 million.

For taxation years beginning on or after April 7, 2022 – budget day – access to the reduced tax rate will instead be phased out gradually, and only businesses with $50 million or more in employed capital in Canada will be fully excluded from the reduced rate.

The goal of this measure is to incentivize small businesses to grow and make capital investments without drastically increasing their tax burden.

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How R&D Partners can help

If you have any questions about this or other tax credit programs, do not hesitate to contact Jacob Ma at [email protected]

Other Resources

Federal Budget Summary

Full Budget PDF

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.

2022-3 Quebec Budget: Key Takeaways for Quebec Innovators

Finance minister Eric Girard tabled budget 2022-2023 on March 22nd, 2022. The budget includes several measures to address the rise of the cost of living for Quebec taxpayers, but also many interesting updates that innovative businesses headquartered in or with operations in the province of Quebec will want to be aware of.  

The largest spending envelope identified in this year’s budget is the $8.9 billion earmarked for the restoration and the enhancement of Quebec social services and healthcare system by 2026-2027. A $4.2 billion spending package dedicated to fueling economic growth in the province comes second. 

This article will mainly focus on identifying new or modified tax measures and how they will benefit Quebec businesses. We will also discuss some measures that have yet to be precisely defined, but are likely to lead to funding or opportunities for Quebec science and technology innovators.  

General Research and Development Investments for 2022-2027  

Within the $1.3 billion set aside by the Quebec government for the continuation of R&D efforts in the province, $500 million will be allocated to private equity funds and $100 million directly to the Impulsion PME Program. Both of these spending envelopes seek to encourage the development of even more innovative businesses in the province. (E.11) 

Find the Impulsion PME Program in our funding search engine 

C3i Tax Credit Bonified Rates Further Extended Until December 31st 2023 

The 2021-2022 Quebec budget introduced doubled base rates for the C3i tax credit, which were initially going to apply to eligible equipment purchased between March 25, 2021 and December 31st 2022. These doubled rates are now available until December 31st 2023. This gives eligible businesses another full year to make equipment and software package purchases and benefit from the doubled tax credit rates. (E.28 

Read our full article on the C3i tax credit to learn more about the eligibility criteria and the types of expenses that qualify here 

Launch of a New Cybersecurity Enhancement Program  

While the budget states that details will be communicated by the appropriate bodies at a later date, we know that a total of $100 million – $30 million in 2022-3 and $70 million in 2023-4 – have been set aside for the creation of a new program to fund initiatives aiming to strengthen cybersecurity in Quebec. (E.25) 

Projects will be deployed in public bodies with the goal of helping the government ensure its digital transformation, protect citizens’ information and ready themselves in the case of cyberattacks.  

Supporting the Bio Food and Forestry Sectors 

The Financière Agricole du Québec (FADQ) will receive an additional $50 million over the next two years to continue funding eligible projects through its Growth Investment Program. Its strategic investment subsidiary known as Capital Financière Agricole will also receive $10 million more in capitalization to continue to support a variety of food processing and agri-food related innovative projects. (E.47) 

Innovation Bois, a program created to support innovation in the forestry sector, will also receive an additional $75 million in funding to increase productivity and support the sector’s diversification.  

New Biofuel and Pyrolisis Oil Production Tax Credits 

Two brand new biofuel and pyrolisis oil production tax credits will replace three previous refundable tax credits: one for the production of ethanol in Quebec, one for the production of cellulosic ethanol in Quebec, and one for the production of biodiesel fuel in Quebec. All three will expire on March 31, 2023. (F.14) 

The new tax credits’ assistance amounts will be calculated based on the carbon intensity reduction offered by the biofuel, ethanol or pyrolysis oil produced compared to the use of an equivalent quantity of regular fossil fuels. Additional details have yet to be released.  

 

How R&D Partners can help 

If you have any questions about funding for innovative companies in Quebec, do not hesitate to contact Jacob Ma at

 

Other Resources 

Ministère des finances du Québec 

2022 Quebec Budget: Province to Keep Spending Taps Open (TD)   

 

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.    

The 2021 Federal Budget: What’s in it for Canadian Innovators?

On April 19th, 2021, Deputy Prime Minister and Finance Minister Chrystia Freeland presented the first Federal budget in two years. Despite the proposed $101 billion investment and projected $154.7 billion deficit in 2021-2, no personal or corporate tax increases are planned. The budget’s focus on economic recovery and growth means several measures and investments will benefit Canada’s leading technology and innovation sectors. It is described as “a plan to invest in Canadian innovation, for long-term growth.” (127)   

This blog post will focus on what we consider to be the announcements most likely to lead to direct funding for Canadian technology companies or startups, and less so on general economic or personal tax measures. For more information about the rest of the budget, we have linked some other helpful articles, as well as the full budget document, at the end of this post.   

Economic Recovery and Small Business Support  

The Canada Recovery Hiring Program (CRHP) will be introduced in June 2021 and stay in place until November 2021 (128). It will help Canadian-controlled private businesses hire more employees as the economy recovers from the COVID-19 pandemic. At its height, the program will cover up to 50% of incremental remuneration paid to employees, going down to 20% by the planned end of the program in November.   

Additionally, the government is extending the Canada Emergency Wage Subsidy and Canada Emergency Rent Subsidy programs until September 25th, 2021. These programs will see their subsidy rates go down gradually starting in July, right after the CRHP comes into effect. It is important to note that, when it comes to the CEWS and the CRHP, a business will only be able to use one of the programs but will be able to choose the one that would offer them the largest amount of support.   

The Canada Small Business Financing Program will see its annual funding increased by $560 million (135). This additional funding will serve a variety of purposes. Maximum loan amounts will be able to go from $350,000 to $500,000 and new loan classes will be introduced to better serve the startup and technology ecosystem: Intellectual property, as well as startup expenses, will become eligible for funding.  

To help small businesses adopt digital technologies, the government is introducing the Canada Digital Adoption Program (131). The program is expected to have an impact in two areas: job creation and helping SMEs adopt new digital technologies faster. “Main street” businesses with a storefront and business location will be eligible to receive microgrants to support costs associated with technology adoption. Manufacturers, processors and other SMEs will also be eligible to receive advisory services for technology planning and development of e-commerce strategies, as well as access to zero-interest loans with the Business Development Bank of Canada.   

Technology and innovation funding  

Zero-emission technology manufacturers will benefit from a new temporary tax reduction until 2032 (161-2). Their corporate tax rates will be slashed by 50% as of January 2022: from 9% to 4.5% for small businesses and from 15% to 7.5% for general corporations. These tax cuts are meant to facilitate the growth of the already significant clean manufacturing sector in Canada. While the products that make a company eligible for the tax cut will be re-evaluated with time, currently the tax reduction could apply to manufacturers of electric vehicles, solar panels, green hydrogen and many others.   

MITACS will receive $708 million over 5 years to create 85 000 work-integrated learning placements (130). MITACS work placements allow students in high technology and science fields to bring their skills to eligible companies. Their Accelerate internships generally offer $7,500 (or 50% of the intern’s total salary) per 4-month work term.   

NRC-IRAP will receive $500 million in funding over 5 years (139). These additional funds are expected to help support 2,500 more innovative SMEs across the country through the popular Industrial Research Assistance Program (IRAP).    

A total of $450 million is being made available for a Venture Capital Catalyst Fund to support innovative companies and entrepreneurs, $50 million of which will be reserved for the life sciences and health technology sectors (139).   

The Innovation Superclusters Initiative will receive an additional $60 million in funding over the next two years. The initiative, launched in 2018, includes five organizations across the country, each focusing on a key economic sector: advanced manufacturing, digital technology, plant protein and agricultural technology, oceans and artificial intelligence.   

The Pan-Canadian Artificial Intelligence Strategy will receive $ 443.8 million in the next 10 years (148). The funding will mainly go towards the commercialization of AI-related technologies and will also support several academic training and research initiatives.   

The government is also launching a new National Quantum Strategy to invest in companies, researchers and other major actors of the emerging quantum technology field. This new initiative represents an investment of $360 million (149).  

A Pan-Canadian Genomics Strategy is also in the works, with a total investment of $400 million over six years planned (150). Few details are currently available on how the funding will be administered for these new Quantum and Genomics initiatives, but more will be announced in the next few months.   

We hope that this overview of some key proposals found in the 2021 Federal Budget can be useful to you and your business. As previously mentioned, we have included some additional resources below if you want to find out more about the many measures included in the 2021 federal budget.   

 

Other resources:  

Highlights of budget 2021: Billions for green economic growth, healthier Indigenous communities (CBC) 

Budget 2021: Building an Innovation Economy of the Future (Government of Canada) 

Read or download the official 2021 Federal Budget here 

If you are wondering what funding is available for innovative companies at the provincial level, read our other recent blog post about the provincial Ontario and Quebec budgets here 

Ontario and Quebec Budget Highlights for Canadian Tech Companies

As soon as the Ontario and Quebec provincial budgets were released, R&D Partners combed through their pages to find out what kind of financial support innovative companies from both provinces could expect from these highly anticipated government releases. In this month’s blog, we will share with you the announcements that most caught our eye.

This article will focus on some new investments that will likely have a direct impact on funding programs for innovative companies in Ontario and Quebec, and less so on measures for individual taxpayers or other industries. If you want to read more on general provincial budget highlights, we have linked other helpful articles at the end of this blog. Since it has yet to be tabled, we will also not be covering Canada’s Federal 2021-2022 budget, set to be released on April 19th.

 

Ontario

On March 24th, Minister of Finance and President of the Treasury Board Peter Bethlenfalvy presented Ontario’s 2021 provincial budget. The Ontario government projects a deficit of $33.1 billion by the end of the 2021-2021 financial year, with the hope of a return to a balanced budget in 2029 (CBC). Despite this, Ontarians will find that no corporate or personal tax increases were announced in this year’s budget.

Many measures to support the health sector, digitize access to government services and help families were announced, but we will focus on the key measures that will most benefit Ontario’s innovation sector.

There are few “funding programs” per se announced in the budget, but we can presume that some of the money attributed to various initiatives will be distributed as grants or other forms of government funding in the following months. Several other key investments are also likely to benefit Ontario’s innovative ecosystems and flagship industries in an indirect way.

$400 million to create the Invest Ontario Fund: Invest Ontario is a relatively new initiative with the mandate to encourage investments into Ontario’s advanced manufacturing, information technology and life sciences sectors. Invest Ontario is not a direct grant fund to which companies can apply for project funding but offers a repertory of Ontario government incentives and a panoply of consulting and investment attraction services and incentives. Later in the year, more details about how this $400 million investment will be used to support Ontario’s innovative companies will be announced.

$56.4 million to create the Ontario Vehicle Innovation Network (OVIN): This brand-new innovation network with continue and expand on the work achieved by its predecessor AVIN (Autonomous Vehicle Innovation Network). The new organization aims to bring together two of the most important innovative industries in Ontario: automotive manufacturing and information technology. Again, specific challenges and funding programs were not disclosed in the budget, but more details should follow soon. If OVIN adopts a similar approach to its predecessor, we can reasonably expect innovation challenges and hiring programs to be delivered by the Ontario Centre of Innovation (OCI). Companies developing electric or autonomous vehicles and connected mobility solutions will be the ones best positioned to benefit from this investment.

Doubled rates for the Regional Opportunities Investment Tax Credit: This refundable Corporate Income Tax credit introduced in the 2020-2021 provincial budget is being temporarily doubled, going from 10% to 20%. The credit is available to Canadian-controlled private corporations that invest at least $50,000 into the renovation or purchase of commercial or industrial buildings in targeted regions of the province where employment rates have historically been below those of the rest of the province, with the goal of increasing employment and strategic investments.

 

Quebec

A day after the release of Ontario’s provincial budget, it was Quebec’s finance minister Eric Girard’s turn to table his own. Like in Ontario, despite a large projected deficit of $12.3 billion and an anticipated slow return to a balanced budget for 2027-2028, no tax increases are planned (The Gazette). In Quebec, SMEs will in fact benefit from a tax reduction making their effective tax rate equal to that of Ontario SMEs: from a previous 4% to a 3.2% rate.

As far as a high-level budget highlights go, Quebec is relying heavily on infrastructure funding to kick-start its pandemic-stalled economy, and significant help is also planned for the tourism, culture, aerospace and IT sectors (Global News).

The Quebec budget offered a few more details than Ontario’s in terms of what portion of the major investments announced can be expected to affect government funding programs, but we will be waiting for many details until later this year.

$27 million for cybersecurity innovation: Prompt Quebec will use this investment to increase the funding allocated to the Quebec Cybersecurity Innovation Program. This program supports Quebec SMEs working on cybersecurity solutions, but also aims to attract foreign cybersecurity companies to settle in Quebec.

$6 million for accelerators and incubators: The government is allocating this amount to increase support available for existing accelerators throughout the province. The goal of this investment is to facilitate the rapid growth of innovative startups and to help Quebec technology accelerators and incubators take their place in global networks.

Doubled rate of the Investment and Innovation Tax Credit (C3i): The base rate of this tax credit first announced in the 2020-2021 budget will be doubled until December 31st, 2022, meaning the minimum tax credit rate will go from 10% to 20% and the maximum rate will increase to 40%. The credit is for businesses that acquire manufacturing and processing equipment, computer hardware and management software packages before January 1st, 2025. Its goal is to incentivize Quebec companies to adopt new technologies.

Simplification of the application process for the University Researcher Tax Credit: The Quebec Government is making this tax credit, which is very useful for innovative companies eligible for the Federal SR&ED credit, more accessible by removing requirements to obtain a pre-authorization from Revenu Quebec to access it. Eligible companies can now simply claim their research and development expenses subcontracted to a university or research center when filing their taxes. The tax credit rates vary from 14% to 30% depending on if the eligible company is an SME or a large corporation.

 

Other resources: 

Read the official Ontario 2021 provincial budget here. 

Here’s what you need to know about Ontario’s 2021 budget (CBC) 

Read the official Quebec 2021 provincial budget here 

Highlights of the 2021-22 Quebec budget (The Gazette) 

Budget 2019: What the SR&ED Changes Really Mean

2015-2016 Quebec Budget: highlights from a corporate incentives point of view