The Canadian government has tabled its #Budget2018, including measures that will affect the country’s tech and innovation community.
Last year’s budget had a heavy focus on Canada’s innovation economy, including $950 million towards industry ‘superclusters’ — which were recently revealed — building a national AI strategy, and launching the Venture Capital Catalyst initiative to spur VC funding.
Through these initiatives, the government has also worked in measures to support gender equality, including requiring firms to explain how they’re improving women’s representation within the industry when applying for VCCI funding, and asking supercluster applicants to include strong representation of women and under-represented groups. The budget also had a commitment to “double the number of high-growth companies in Canada…from 14,000 to 28,000 by 2025.”
This budget builds on these announcements, and shares more on how the government is investing in the innovation economy.
Executive summary
Supporting women entrepreneurs
This budget had a heavy focus on supporting equity between women and men. The government says it plans to launch measures to address the wage gap; currently, women earn 31 percent less than men on an annual basis, according to the government.
In the fall, the government will table a pay equity regime applying to businesses operating within the federally regulated sector, which will include “strong oversight and enforcement, require regular maintenance, and take an innovative approach to ensure that on average, women and men receive the same pay for work of equal value,” the budget reads.
The government will provide $400 million over five years on an accrual basis, and $511 million over five years on a cash basis to regional development agencies. Of this, $105 million will be dedicated to supporting women entrepreneurs specifically.
BDC will coordinate bootcamps that focus on enhancing business skills and financial literacy for women. Through BDC, the government will provide $1.4 billion over three years in new financing for women entrepreneurs. This commitment is in addition to an increase to $200 million (from $70 million) for investments in women-led technology firms over five years through the BDC’s Women in Technology Fund.
The government will also invest $10 million over five years to connect women with expanded export services and opportunities through the Business Women in International Trade Program. $250 million over three years will be invested in Export Development Canada to provide financing and insurance solutions for women-owned and women-led businesses that are exporting.
The government will set an objective of increasing the participation of women-owned small and medium-sized enterprises in federal procurement, so that they constitute at least 15 per cent of SMEs supplying the Canadian government.
For women entrepreneurs in agriculture, the government will launch a new lending product this year through Farm Credit Canada.
Ottawa also hopes to collect gender disaggregated data to make more informed decisions on how to support women entrepreneurs. It will make $9.5 million over three years to support third-party proposals through a competitive process, to be administered by Innovation, Science and Economic Development department.
The budget notes that legislation recently introduced in Parliament by Minister of Innovation, Science and Economic Development Navdeep Bains proposes amendments to the Canada Business Corporations Act that would require federally incorporated corporations to make annual disclosures to shareholders regarding the diversity of their senior management teams and boards of directors. In partnership with the private sector, the government will create an annual award for Canadian corporations showing leadership in this area.
Streamlining and revisiting regulation
$11.5 million over three years will go towards the government pursuing a regulatory reform agenda focused on supporting innovation and business investment, and making the regulatory system more agile. These include targeted reviews over three years and developing an e-regulation system.
The government is providing $4.6 million over five years, and $0.8 million per year ongoing, to enhance the Startup Visa application process by ensuring applicants, private sector partners, and immigration officials are able to process applications electronically and more efficiently.
“As technology evolves, it’s important that regulation adapts. PayPal welcomes the government’s efforts to modernize regulations, to ensure that our payments systems are reliable, safe, convenient and more affordable for Canadians,” said PayPal president Paul Parisi. “We applaud the government’s efforts to enable the delivery of financial services in new and innovative ways, including giving banks greater flexibility to partner with FinTechs.”
Budget 2018 proposes to provide $196.8 million over five years to Public Services and Procurement Canada to establish a new electronic procurement program.
The government will also provide $507.7 million over five years, and $108.8 million per year thereafter, to fund the National Cyber Security Strategy, which will encourage collaboration between the Canadian government and other partners, and building an adaptive cyber ecosystem. It will also commit $155.2 million over five years, and $44.5 million per year ongoing, to the Communications Security Establishment to create a new Canadian Centre for Cyber Security. The government will introduce legislation to allow various cyber security functions to consolidate into the new Centre.
Changes on passive investments
Last year, the government faced backlash from Canada’s business community after proposing tax changes on small businesses. The community said that these changes would stifle angel investment and discourage innovation.
This budget clarifies the government’s position on passive investments made by corporations, saying that approximately 50,000 private corporations will be affected by the measures. “Some wealthy corporate owners can gain significant tax advantages by holding corporate income inside their corporation for personal savings purposes,” the budget reads.
Passive investments already made by private corporations’ owners, including the future income earned from such investments, are protected. Moving forward, however, a $50,000 threshold on passive income in a year (equivalent to $1 million in savings, based on a five percent rate of return) will be available with the goal of providing more flexibility for business owners to hold savings for multiple purposes.
Budget 2018 also proposes to introduce an additional eligibility mechanism for small business tax deduction, based on the corporation’s passive investment income. Under the proposal, if a corporation and its associated corporations earn more than $50,000 of passive investment income in a given year, the amount of income eligible for the small business tax rate would be gradually reduced.
Capital gains from the sale of active investments or investment income incidental to the business, such as interest on short-term deposits held for operational purposes, will not be taken into account in the measurement of passive investment income.
Supporting research and development
The Accelerated Growth Service and the Industrial Research Assistance Program’s Concierge Service will be consolidated, and the consolidated program and associated funding will reside within Innovation Canada. The new consolidated program will receive $13.5 million over five years, and $3 million per year ongoing, for 15 new Innovation Advisors to support Canadian companies.
To streamline government services to businesses, the government will create four flagship programs: the Industrial Research Assistance Program, the Strategic Innovation Fund, the Canadian Trade Commissioner Service, and regional development agencies. The government will invest $700 million over five years, and $150 million per year ongoing towards IRAP. The Canadian Technology Accelerators program will receive $10 million over five years, with $2 million per year thereafter.
“While total overall funding for innovation programming will increase, the total number of business innovation programs will be streamlined by up to two-thirds. Additional funding will also be provided to regional development agencies in order to help businesses scale up and take advantage of growth opportunities,” the report reads.
Over the next one to two years, changes will be managed to minimize disruption and all current innovation programs will continue to exist as the government works to streamline programs. To help businesses better access procurement opportunities, the government will also launch a new electronic procurement platform. A new portal called Innovation Canada has launched to provide businesses with more information on innovation programs.
There were also measures to support researchers in the country. Budget 2018 proposes to provide the Canada Foundation for Innovation with $763 million over five years to provide researchers with more tools. This includes $160 million for increased support to Canadian research facilities through the Foundation’s Major Science Initiatives Fund, and establishing permanent funding at an ongoing level of $462 million per year by 2023 to 2024 for research tools and infrastructure supported through the Canada Foundation for Innovation.
The government is providing funding to Canadian research institutions such as the Institute for Quantum Computing, which will receive $15 million over three years. The National Research Council will also created targeted efforts to support women, youth, Indigenous Peoples, persons with disabilities, and visible minorities among its researchers.
Over five years, the government will provide $140 million to increase support for collaborative innovation projects involving businesses, colleges, and polytechnics through the College and Community Innovation Program.
To ensure that businesses are getting what they need from innovation-related programs, the government is including $1 million per year ongoing to Statistics Canada to improve performance evaluations for innovation-related programs, and $2 million per year to the Treasury Board Secretariat to establish a central performance evaluation team.
The government plans to cut the small business tax rate to nine percent by January 1, 2019, from the current 10 percent.
Big data and IP strategy
The government plans to provide funding towards a Digital Research Infrastructure Strategy to deliver more open access to advanced computing and big data resources for researchers. It will $572.5 million over five years, with $52 million per year ongoing, to implement this strategy.
However, the Council of Canadian Innovators noted the lack of language around a national data strategy: “Canadian tech CEOs continue to advocate for the need of a national data strategy that will enable Canada to become a leader in the data-driven global economy,” said executive director Ben Bergen.
The government is also launching a new intellectual property strategy to help Canadian companies better protect and access ideas; Minister of Innovation, Science and Economic Development Navdeep Bains will announce details of the strategy in the coming months. The budget proposes investing $85.3 million over five years, with $10 million per year ongoing, towards this IP strategy.
$30 million will be used to pilot a Patent Collective, which will work with Canada’s entrepreneurs to pool patents so that businesses have better access to IP.
“A national intellectual property strategy is long overdue for Canada and is critical to ensuring the success of the government’s innovation agenda. Canadian innovators welcome the creation of an ‘IP Collective’ as a new tool in Canada’s 21st century digital policy toolkit,” said Bergen. “The commitment upwards of $85 million over the next five years is a strong start for the government to ensure the value of publicly-funded research stays within Canada and benefits the national economy, as well as creates freedom to operate for domestic firms.”
Over five years, $21.5 million over five years will be provided to Innovation, Science and Economic Development Canada to improve access for Canadian entrepreneurs to intellectual property legal clinics at universities. $33.8 million over five years will go to Innovation, Science and Economic Development Canada, including $4.5 million for the creation of an intellectual property marketplace.