The Liberal government’s second federal budget announced on March 22 put a clear spotlight on an area of special interest to many firms in the National Capital Region: innovation.
According to the minister of finance, “with its strong focus on innovation, skills, partnerships and fairness, Budget 2017 takes the next steps in securing a more prosperous future for all Canadians.”
While the budget was relatively quiet with respect to tax changes, the government offered some additional insight into its “innovation and skills plan,” with a focus on investment in skills training and measures to encourage innovation by Canadian businesses.
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Here are some of the highlights that will be of interest to Ottawa’s entrepreneurs:
Innovation Canada
The budget proposes to establish Innovation Canada, a new agency intended to serve as a one-stop shop for Canadian innovation programs. The government intends to review many of its current innovation programs that are administered by multiple departments and consolidate them under the umbrella of Innovation Canada. Innovation Canada would then serve as the single point of contact for business that are seeking government assistance with respect to their innovation projects. This should reduce the amount of red tape around government funding and simplify the process for Canadian businesses.
Innovation superclusters
The budget pledges to invest up to $950 million over five years to assist in the establishment of innovation clusters. The document makes specific reference to the success of these clusters around the world and also cites the success of the Toronto-Waterloo corridor. By investing these funds, the government hopes to establish other clusters with “anchor” companies, post-secondary institutions and specialized talent in order to drive innovation and encourage growth.
These funds will be available through a competition process which is intended to be launched in 2017. The focus of this investment will be on “highly innovative industries such as advanced manufacturing, agri-food, clean technology, digital technology, health/bio-sciences and clean resources, as well as infrastructure and transportation.”
Given the historical success of the Kanata North Technology Park, this funding may provide a significant opportunity for Ottawa to become such a cluster, thereby attracting more talent and boosting the local economy. The recent autonomous vehicle summit in Kanata highlighted the opportunities in the transportation sector, and hopefully Ottawa-based companies will be successful in obtaining this funding.
Venture capital
Budget 2017 proposes to provide the Business Development Bank of Canada with up to $400 million over three years for investment in late-stage venture capital. These funds will typically be available to young yet established businesses with existing sales in order to help the companies grow.
To access these funds, Canadian firms will have to submit proposals to the government which will be evaluated on a number of factors. These factors include: the amount of private capital already secured, expected benefits for Canadian firms, the investment strategy for the funds and a plan for risk-sharing between the government and private sector.
While no specific details are available at this time, the minister of innovation, science and economic development is in consultation with private sector experts and will announce further details in the near future.
Government procurement: Innovative Solutions Canada
In response to the demands of Canadian businesses to have better access to government procurement opportunities, the budget proposes to launch a new program – Innovative Solutions Canada. Modelled after the U.S. Small Business Innovation Research Program, Innovative Solutions Canada proposes to allocate up to $50 million from federal departments and agencies towards early stage research and development, late-stage prototypes and other goods and services from Canadian businesses. The government is also encouraging other Canadian jurisdictions to take part in this program in the future.
This should provide easier access to government contracts for Ottawa’s early stage businesses. Of interest, the government has indicated it will make a specific effort to encourage procurement from companies led by women and other underrepresented groups in order to encourage inclusive growth. The government has also committed to sharing the results of the program.
Although the budget is being touted as a “stay-the-course” plan from a tax perspective, it does clearly propose several programs and initiatives to encourage innovation and growth in Canada, recognizing that in order to remain competitive in today’s global economy, Canada needs to drive innovation. However, while innovation is the first step, we should not lose sight of ensuring that the commercialization of that innovation is what will drive Canada forward on the global stage.
Nick Korhonen is senior manager of taxation services and Gavin Miranda is a regional tax leader in the Ottawa office of MNP LLP.
