On Monday, the Government of Canada released the 2024 Fall Economic Statement, following up on several commitments from Budget 2024. The Statement outlined significant proposals for reforming SR&ED, investing in AI, implementing new clean economy tax credits, expanding small business incentives, and more. NorthBridge has compiled a summary of the key highlights from the statement.

Boosting Scientific Research and Experimental Development (SR&ED)

Following several rounds of consultations, the Statement introduced enhancements to the SR&ED program, aiming to encourage innovation and support high-growth firms. An estimated $1.9 billion will be invested over five years beginning in 2024-2025 to implement these changes. Updates to the SR&ED program include:

  • Expanded Eligible Expenditures: The 35% enhanced investment tax credit annual expenditure limit will increase from $3 million to $4.5 million, while the taxable capital phase-out thresholds will expand from $10M–$15M, and $50M–$75M.
  • Increased Support for Canadian Public Corporations: The enhanced refundable credit will now extend to Canadian public corporations.
  • Reinstating Capital Expenditures Eligibility: Capital investments in productivity-enhancing assets, such as IT systems for machine learning in SR&ED projects, will now qualify for deductions and tax credits.
  • Patent Box Regime: Currently undergoing consultations, a patent box regime will be introduced to encourage intellectual property retention in Canada, with further details to be announced in Budget 2025.

Clean Economy Investment Tax Credits

Originally announced in Budget 2021, the government has implemented four major investment tax credits (ITCs) to encourage clean economy investments. These credits incentivize investments in clean energy, technology, and manufacturing, requiring businesses to meet prevailing wage and apprenticeship conditions to receive the maximum rates.

  • Implemented Tax Credits:
    • Carbon Capture, Utilization, and Storage (effective January 1, 2022)
    • Clean Technology (effective March 28, 2023)
    • Clean Hydrogen (effective March 28, 2023)
    • Clean Technology Manufacturing (effective January 1, 2024)

A proposed expansion of the Clean Hydrogen ITC will include hydrogen produced from methane pyrolysis. More information on the legislated Clean Economy investment tax credits can be found here.

A further four credits are awaiting implementation, with further updates to be provided as legislation is drafted.

  • Upcoming Legislation and Retroactive Eligibility:
    • Clean Electricity tax credit (effective April 16, 2024, retroactively available for qualifying projects).
    • Expanded Clean Technology credit for waste biomass energy heat and electricity generation (effective November 21, 2023).
    • Enhanced Clean Technology Manufacturing credit to include polymetallic mining (effective January 1, 2024).
    • EV Supply Chain tax credit (effective January 1, 2024).

The new EV Supply Chain credit will cover 10% of costs related to buildings required to manufacture EV supply chain components, in EV assembly, EV battery production, and cathode active material production.  

Securing Canada’s AI Advantage

Following a number of consultations the Canadian government has promised several investments to strengthen the nation’s AI ecosystem and secure its position as a global leader, in addition to the $2.4 billion investment proposed in Budget 2024. The proposed investments are part of the Canadian Sovereign AI Compute Strategy, which will support researchers and AI firms over the next several years, with $240 million already committed to Cohere to build a world-class AI data center in Toronto. The strategy will include the following commitments:

  • The AI Compute Access Fund will provide $300 million over three years, starting in 2025-26, to help small- and medium-sized businesses increase their compute capacity.
  • Boosting Canadian AI Champions will provide $700 million over five years, starting in 2024-25, to support projects that expand Canada’s AI ecosystem. This funding will be accessed through a call for proposals under the ISED’s Strategic Innovation Fund (SIF).
  • $200 million will be provided over two years, starting in 2025-26, to augment compute infrastructure, including funding for AI institutes (Mila, Vector, Amii), the Digital Research Alliance of Canada, and health AI infrastructure.
  • A further $800 million will be provided over four years, starting in 2025-26, to transform large-scale public compute infrastructure.

In supporting the existing Pan-Canadian AI Strategy Commercialization Pillar, $150 million will be provided to the Global Innovation Cluster, and $24 million to the National AI institutes, for the purpose of continuing AI commercialization activities.

Further, initiatives like the Industrial Research Assistance Program’s AI Assist stream and the Regional AI initiative provide small- and medium-sized businesses with funding and support for AI adoption. Up to $15 billion in aggregate loan and equity investments has also been proposed for AI data centre projects receiving investments from Canadian pension funds.

Canada Growth Fund

Launched in 2023, the $15 billion Canada Growth Fund is intended to attract private capital and contribute to economic growth through investments in low carbon projects. $3 billion in funding has been committed to projects which involve geothermal power and heat, carbon capture technology, clean technology commercialization, and more.

Investing in Training

Beginning in 2025-26, $29.2 million will be provided over three years to launch a pilot initiative through Talent for Innovation Canada to train and deploy talent in biomanufacturing, clean growth, electric vehicle manufacturing, and microelectronics.

In addition to an upcoming intake to an Investments in Training Equipment stream, a $90 million investment will be made through Employment and Social Development Canada (ESDC), to create apprentice placements for small- and medium-sized enterprises.

Accelerated Investment Incentive

Reinstatement of the Accelerated Investment Incentive has been proposed, to allow businesses to write off the costs of processing machinery and equipment, clean energy generation and conservation equipment, and zero-emission vehicles. The incentive will apply to property acquired on or after January 1, 2025.

Capital Gains Rollover on Business Investment

Proposed amendments to the Income Tax Act will expand the definition of eligible small business corporations, in allowing preferred shares to qualify for the rollover, with the asset limit increased from $50 million to $100 million, and the duration of investment acquisition increased from 120 days after the year of disposition, to a full calendar year. This will allow more investors to defer capital gains taxes on reinvestments into small business shares.

Attracting Investment

To support entrepreneurs, start-ups, and high-potential firms, $1 billion will be provided in 2025-26 to launch the fourth round of the Venture Capital Catalyst Initiative. An additional aggregate of $1 billion has been proposed to invest in mid-cap growth companies.

Accelerating Digital Adoption for Small Businesses

Up to $500 million over four years will be provided to the Business Development Bank of Canada to help small- and medium-sized businesses adopt advanced digital technologies, particularly artificial intelligence (AI). This initiative aims to enhance productivity, competitiveness, and economic growth.

Canada Carbon Rebate for Small Businesses

Announced in Budget 2024, the Canada Carbon Rebate for Small Businesses will deliver over $2.5 billion in tax-free rebates to approximately 600,000 small- and medium-sized businesses with 499 or fewer employees. As part of this, the program will:

  • Introduce a base payment for small businesses with 1–20 employees, equivalent to the amount for 20 employees.
  • Gradually reduce rebate amounts for businesses with over 300 employees, phasing out completely at 500 employees.
  • Extend eligibility to include cooperative corporations and credit unions.
  •  Automatically return proceeds to eligible businesses via direct deposits and cheques.

Implementing the Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive, announced as part of Budget 2024, will encourage Canadian innovators to grow their businesses and provide incentives to sell eligible business shares by reducing the capital gains inclusion rate to one-third, up to a $2 million lifetime maximum. An accelerated rollout will phase in the $2 million limit by $400,000 annually, beginning in 2025, allowing the program to reach full implementation by 2029. Additional benefits will be realized through the program:

  • Combined with the increased $1.25 million Lifetime Capital Gains Exemption, entrepreneurs can benefit from reduced taxation on business shares worth up to $6.25 million.
  • A removal of the requirement to be a founding investor will allow more business owners to qualify for the exemption.
  • Expanded eligibility will include the disposition qualified farming and fishing properties, and personal care businesses.

Local Financing for Small Businesses

Access to financing for small businesses has become increasingly limited in Canada, with small- and medium-sized businesses receiving a shrinking share of new commercial loans. To address this gap, the Business Development Bank of Canada (BDC) launched the Community Banking Initiative on November 21, 2024. This initiative aims to partner with up to 80 local lenders to help 100,000 small business owners, particularly those with unconventional business models or in rural/remote areas, access the financing they need over the next decade.

Reducing Credit Card Fees for Small Businesses

Following a new rate announcement on October 19, 2024, Visa and Mastercard will reduce interchange rates by up to 27% for over 90% of credit card-accepting small businesses, saving them up to $1 billion over five years. This reduction allows businesses to reinvest in growth and offer more competitive prices. Added to this, legislative measures are currently being considered to address high flat-fee charges and ensure payment processors pass on these savings to small businesses.

Learn More

Contact one of our experts to stay updated on new developments with SR&ED, the Clean Economy ITCs, and more, and learn how you can leverage these opportunities for your business.