Canada has officially decided. Mark Carney and his Liberal Party were officially elected on April 28, 2025. This was an important vote, with trade tensions rising with our South Neighbours, and growing uncertainty around Canada’s innovation and investment climate. Many Canadians, specifically businesses, builders, and entrepreneurs, are now wondering what this will mean for them.
With several significant changes already proposed, things are off to a good start. Focus is being put on supporting Canadian businesses and shifting the structure and rules around several existing programs and tax regulations to fuel the Canadian economy. Let’s break it down.
Impacts on the SR&ED Program
Promising proposals have been made regarding the SR&ED (Scientific Research & Experimental Development) program. The Liberal Party is focusing on building and nurturing the Canadian innovation ecosystem, and not letting great companies slip into the orbit of America once they reach a certain size.
The specific impacts to the SR&ED program include increasing the expenditure cap for CCPCs (Canadian Controlled Private Corporations) for the refundable 35% tax credit, from $3M to $6M. Doubling the claimable amount under SR&ED will have a significant impact on the medium- and large-sized organizations in Canada (https://liberal.ca/cstrong/build/). Along with this significant change, regarding SR&ED, the proposal also mentions “other reforms to drive the economic growth for small and medium-sized businesses.” Which sounds like a fancy way of saying nothing.
One thing to note, a very similar promise was made by the previous Liberal Government in the 2024 Fall Economic Statement (more information available here). The proposed increase to the expenditure limit was set to increase the amount from $3M to $4.5M, but that notice came the day that Canada’s former Finance Minister, Chrystia Freeland, stepped down, and mere moments before the Government was in leadership limbo.
We are hopeful that these changes will stick and that they will be put in place as quickly as possible. Historically, government changes to the SR&ED program happen at a snail’s pace, but with a microscope on the Canadian Government right now, and specifically on how they are supporting the Canadian economy, we are hopeful this change will be implemented quickly.
Flow-Through Shares: Support for Innovative Industries
Flow-through shares, for those that don’t know, are a very effective way for pre-revenue or early-stage companies to get equity from investors, while the investors get the tax benefits of the company. Flow-through shares allow investors to invest capital for shares in the company, which then allows investors to deduct eligible expenses directly from their taxable income.
The proposed changes, according to Mark Carney’s plan, will introduce new flow-through shares into the innovation ecosystem. The goal is to help startups in the AI, quantum computing, biotech, and advanced manufacturing industries raise capital by financially motivating investors to fund these companies.
Very few details are available to clarify the nuances of how this will work at this time. If SR&ED is stackable with these flow-through shares, there would be a significant impact on the Innovation landscape, which is much needed in the current investment landscape in Canada.
This could become a huge financial driver for investing in early-stage startups, and with Canada’s risk-aversion lately, that could be exactly what the entrepreneurial community needs.
Encouraging IP to Stay in Canada – Patent Box Regime
In another attempt to address what is now known as “Brain Drain”, a growing problem of individuals, companies and their IP (Intellectual Property) fleeing to the United States, the Liberal Government is proposing a “Patent Box Regime”.
For those that don’t know, a patent box regime is a special tax policy that gives preferential treatment to businesses commercializing IP in Canada. Revenue generated from IP assets is taxed at a lower rate than the standard corporate tax rate.
The details of this proposal are far and few between at this point, but this could theoretically make a significant impact in addressing “Brain Drain”, and not only build stronger companies in Canada, but keep the top talent in Canada too.
AI Tax Credit to Fuel Innovation
Promises to boost AI adoption and commercialization in Canada have been addressed through a proposed 20% tax credit. This credit could cover expenses for SMBs related to adopting, training and commercializing AI as long as the company is doing so by increasing their headcount.
The asterisks about headcount is interesting, as so much of the AI conversation these days is around increasing efficiency (which often comes in the form of eliminating jobs that have been made redundant by AI). It will be interesting to see how this tax credit plays out when the further details are proposed with the budget, which is expected to be put in place by July 1, 2025.
Permanency of the Black Innovation Program
A promise to make the Black Entrepreneurship Program permanent will do great things to continue supporting and funding for black-led businesses in Canada.
This program will continue to support the growth of black entrepreneurs in Canada via funding, knowledge hubs and resources. It is programs like these that help build a well-rounded innovation ecosystem!
Final Thoughts
While it’s still early days for Mark Carney’s Liberal minority government, the mission is clear: accelerating the innovation economy. From doubling the SR&ED expenditure cap to supporting Canadian IP and AI adoption, there are some very optimistic signs that the entrepreneurial ecosystem will benefit from this government’s time in power.
For founders, investors, and problem-solvers, these proposed changes could reshape the funding landscape. These changes might be exactly what the currently rather flat investment ecosystem needs.
We’ll be watching closely as more details emerge in the coming budget. Until then, cautiously optimistic feels like the way to describe things.
