19 April 2022

A Strong, Growing, and Resilient Economy

The new Federal Budget (Budget 2022: A plan to Grow Our Economy and Make Life More Affordable) was published by the Ministry of Finance on April 7, 2022, following the speech by Finance Minister Chrystia Freeland.

In order to endorse the economic recovery following the Covid-19 pandemic and to be a major actor of the new global economy, the Federal government wants to promote business investment, encourage innovation and be a leader to fight climate change as well as in the high technology area. The presented measures this year hinge on multiple points such as leading and supporting economic growth and innovation, investing in intellectual property and research, or driving investment and growth for small businesses. Theses new initiatives among all those presented will represent around $55 billion over five years, including $9 billion this year alone.

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

1. No modifications on the attribution methods on SR&DE program

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. The government intends to undertake a review of the program, first to ensure that it is effective in encouraging R&D that benefits Canada, and second to explore opportunities to modernize and simplify it. Specifically, the review will examine whether changes to eligibility criteria would be warranted to ensure adequacy of support and improve overall program efficiency.

As part of this review, the government will also consider whether the tax system can play a role in encouraging the development and retention of intellectual property stemming from R&D conducted in Canada. In particular, the suitability of adopting a patent box regime to meet these objectives will be assessed.

2. Building a World-Class Intellectual Property Regime

Today, Canada lags behind in the number of patents it holds compared to other countries it competes to attract investment and grow the economy. To build a world-class intellectual property regime, Budget 2022 proposes to build on previous investments and provide $96.6 million over five years, starting in 2022-23, and $22.9 million afterwards. Among the 5 proposed measures, it is worth mentioning a funding of$35 million over five years, starting in 2022-2023, for Global Affairs Canada and its CanExport program to help Canadian businesses protect their intellectual property on foreign markets.

3. Creating a Canadian Innovation and Investment Agency

Canada currently ranks last among the G7 countries in business R&D spending. Budget 2022 announces that the government intends to create an operationally independent federal innovation and investment agency, and proposes $1 billion over five years, starting in 2022-23, to support its initial operations. This new Innovation and Investment Agency will proactively work with new and established Canadian industries and businesses to help them innovate, grow, create jobs, and be competitive in the changing global economy. Final details on the agency’s operating budget will be determined following further consultations later this year.

4. Investment Tax Credit for Carbon Capture, Utilization and Storage (CCUS)

Budget 2022 proposes a refundable investment tax credit in 2022. It could be granted in respect of CCUS projects to the extent that they permanently store captured CO2 through an eligible use (storage in reserved formations and storage in concrete). From 2022 through 2030, the investment tax credit rates would be set at:

  • 60% for investment in equipment to capture CO2 in direct air capture projects.
  • 50% for investment in equipment to capture CO2 in all other CCUS projects.
  • 37.5% for investment in equipment for transportation, storage and use.

These rates will then be reduced by 50% for the period from 2031 through 2040. The proposed refundable tax credit is expected to cost $2.6 billion over five years starting in 2022-23, with an annual cost of about $1.5 billion from 2026-27 through 2030.

5. Supporting Canada’s innovation clusters

Budget 2022 proposes to provide $750 million over six years, starting in 2022-23, to support the further growth and development of Canada’s Global Innovation Clusters. These clusters will expand their national presence and collaborate to increase their impact. To maximize the impact of this funding and ensure it matches the needs of industry and governments, it will be distributed among five clusters on a competitive basis.

6. Renewing the Canadian Agricultural Partnership

The Canadian Agricultural Partnership is a comprehensive package of support offered by the federal, provincial, and territorial governments. Each year, these programs provide $600 million to support agricultural innovation, sustainability, competitiveness, and market development. Federal, provincial, and territorial governments will work together over the coming year to renew the programs under the next agricultural policy framework that begins in 2023.

7. Supporting critical minerals projects in Canada

Critical mineral mining projects are expensive and come with a unique set of challenges that can often include remote locations, changing prices, and lengthy regulatory processes. Several measures are proposed in Budget 2022 to support critical mineral projects including the introduction of a new 30% Critical Mineral Exploration Tax Credit for specified mineral exploration expenditures incurred in Canada and waived for the benefit of flow-through share holders.

8. Investing in clean technology

Canada is taking significant steps towards to reduce its emissions by 40 to 45% below 2005 levels by 2030 and achieve carbon neutrality by 2050. To encourage businesses to invest in clean technologies, the federal government proposes:

  • A new tax credit for Clean Technology Investments: Finance Canada will work with experts to establish an ITC of up to 30%, focused on zero-emission technologies, battery storage solutions and clean hydrogen. Details on the design of the investment tax credit will be presented in the fall 2022 Economic and Budget Update.
  • A reduction of 50% of the general corporate tax rate and small business tax rate for manufacturers of zero-emission technologies to also target manufacturers of air source heat pumps.

The FI Group team is available for any further information you may have.

Feel free to contact us!