As expected, Budget 2022 was heavy on housing affordability and a host of other items reflecting the partnership between the NDP and Liberal Party. Unexpectedly, it was also quite a newsy budget for innovative Canadian businesses, with much to look out for in the budget review.
Here’s a rundown of some of the most impactful items for Innovators:
The SR&ED program is due for a tune-up. The budget proposes expanding the eligibility criteria, simplifying the process and widening the scope. All of these changes would be welcome, but the absence of detail leaves us waiting for the Fall Economic Statement at the earliest to find out what changes will be implemented. With Canada lagging globally in GDP, an expansion to this already successful program would be a nice boost for Canadian innovation.
New Investment Tax Credits (ITCs)
Perhaps building on the success of SR&ED and other ITCs, the Feds propose to create two more tax credit programs. The Carbon Capture, Utilization, and Storage (CCUS) program is slated to provide about $8.6B from its inception in 2022/23 until 2030 – an ambitious goal that puts the onus squarely on emitters to take advantage of up to 60% refunds for implementing CCUS technologies.
The second ITC may be a credit or a refund; again, we won’t find out until the fall. The program proposes to offer credits for low and zero-emissions technology such as batteries and heat pumps. Critics of the carbon cost of battery materials will note that the budget also calls for new mineral exploration in-country.
What ties this all together is the federal carbon tax. With a 60% refund for carbon capture and a hefty tax on emissions, the business case to adopt green technologies will be very strong. Today, the industry has only a few players, and the Federal Government is betting big on large emitters to help grow Canada’s IP advantage in carbon capture.
The carbon tax also pairs well with improvements in battery storage and the installation of heat pumps, where the audience is building owners rather than heavy industry. In both cases, we see the carrot being used to avoid the already-swinging stick.
A number of programs have been renewed, continued or pressed back into service. The theme, in most cases, continues to be Canadian Innovation driving a Green Recovery.
- SIF will add $1 Billion and begin funding Life Sciences programs alongside the SIF Net Zero program already in place.
- UBF, the superclusters, regional development agencies, the Quantum program, AI and several other industry and regional programs have received another tranche of funds to continue their work.
- Mineral Exploration receives over $2 Billion in several new grant programs to spur domestic raw materials extraction.
Casting a shadow over the budget is a strong statement that private sector investment is necessary to drive the economic transformation the country needs while facilitating Canada’s 2030 and 2050 climate goals. To that end, the Canada Growth Fund seeks to leverage a $15 Billion mandate into $60 Billion of investment. This will be done in partnership with the proposed Innovation & Investment Agency.
Where Does This Leave Us?
The Canadian tech start-up ecosystem has been encouraged by federal money into mineral exploration and carbon capture. Those industries are primed to heat up. The rest of the programs are largely unaffected.
In the face of rising interest rates and inflation, non-dilutive government funding will certainly be a welcome relief for Innovators. Perhaps the most important conclusion we can reach is that the priorities laid out in this budget will be intact for at least the next few years, with the NDP and Liberals supporting them through 2025. The time to chart a course is now – the funds are available, but as with all government programs, it takes work and patience to get them.
Easly can certainly help you there.
Speak with an Easly team member today and be on your way to on-demand, non-dilutive capital.
Andrew Kareckas, CEO, Easly