6 April 2023

A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future

March 2023

The new Federal Budget (Budget 2023: A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future) was published by the Ministry of Finance on March 28, 2023, following the speech by Finance Minister Chrystia Freeland.

In a context of global uncertainties, with its budget, the federal government aims to prioritize promoting business investments, fostering innovation, leading the fight against climate change, and advancing high technology. This year’s proposed measures are centered on various focal points, including promoting economic growth and innovation, investing in research and intellectual property, expansion of green technologies and infrastructure, and driving growth for small businesses.

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 to the SR&ED 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. In 2022, the government announced the intent to undertake a review of the program, first to ensure that it is effective in encouraging R&D that benefits Canada, and to assure the development, retention, and commercialization of intellectual property, including the consideration of adopting a patent box regime. To keep up with this objective, the government will continue to access stakeholders and decide the next steps in the coming months.

2. Expanding Innovation Through a New Crown Corporation

The Canadian government has proposed the establishment of a new Crown corporation called the Canada Innovation Corporation (CIC) in Budget 2023. The corporation’s primary objective will be to increase research and development expenditure across all sectors and regions of Canada. The CIC will work towards facilitating research and development investments and collaborations between the private and public sectors. The announced budget is $2.6 billion for the new Canada Innovation Corporation over 4 years, starting in 2023-24.

3. Using College Research to Help Businesses Grow

Canadian colleges, CEGEPs, and polytechnic institutes offer access to their facilities, equipment, and expertise for solving applied research problems. Through these institutions, students develop the skills required for a successful career. Businesses can partner with these institutions to access the talent and tools necessary to innovate and expand. Budget 2023 has proposed to invest $108.6 million over three years, beginning in 2023-24, to expand the College and Community Innovation Program, managed by the Natural Sciences and Engineering Research Council.

4. Establishing the Dairy Innovation and Investment Fund

The dairy industry is currently experiencing an excess of solids non-fat (SNF), which is a by-product of dairy processing. Insufficient processing capacity for SNF results in lost opportunities for dairy farmers and processors. To address this issue, Budget 2023 proposes to establish the Dairy Innovation and Investment Fund. Agriculture and Agri-Food Canada will receive $333 million over ten years, beginning in 2023-24, to invest in research and development of new products based on SNF, promote market development for these products, and expand processing capacity for SNF-based products more broadly.

5. Supporting Resilient Infrastructure Through Innovation

In 2017, the Smart Cities Challenge was launched to promote innovative ways to enhance the residents’ quality of life. The first round saw four winners receive $75 million. To address the impacts of climate change, a new Smart Cities Challenge round will begin later this year, focusing on using technology, data, and innovation to improve climate resiliency.

6. Investing in Clean Technology

The Canadian government has been working for the past seven years to promote a net-zero economic future. Budget 2023 proposes a set of measures to incentivize businesses to invest in sustainable infrastructure, clean technologies, and renewable energy, with the goal of further advancing Canada’s clean economy:

  • A new refundable Investment Tax Credit for Clean Technology Manufacturing equal to 30% of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals.
  • Enhancing the Reduced Tax Rates for Zero-Emission Technology Manufacturers presented in Budget 2021 with a three-year extension of the reduced tax rates (i.e., until 2034), an extension of the eligibility to manufacturers of nuclear energy equipment and the processing and recycling of nuclear fuels and heavy water.
  • A new Investment Tax Credit for Clean Hydrogen with support levels ranging from 15% to 40% of eligible project costs, with the cleanest hydrogen projects receiving the highest assistance levels.
  • An additional $500 million over ten years to the Strategic Innovation Fund and directing up to $1.5 billion towards clean technologies, critical minerals, and industrial transformation projects.
  • Expanding eligibility for the Clean Technology Investment Tax Credit to include geothermal energy systems and modifying the phase out of this credit so its start in 2034 instead of 2032 as initially planned.
  • Enhancing the Carbon Capture, Utilization, and Storage Investment Tax Credit to include dual use heat and/or power equipment and water use equipment, to be available to projects that would store CO2 using dedicated geological storage in British Columbia.

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