New Resources for Tech and Innovation in Federal Budget 2022

On April 7, 2022, the Government of Canada released its budget for the upcoming 2022 fiscal year (the “Budget”). Formally titled Budget 2022: A Plan to Grow our Economy and Make Life Affordable, the newest set of commitments includes a number of developments for Canada’s tech and innovation spaces. In keeping with its commitment to a “strong, growing and resilient economy”, the federal government will be implementing a number of policy changes and committing new resources aimed at stimulating the Canadian tech and innovation sectors. Among the most notable commitments are the establishment of the Canada Growth Fund, the creation of the Canadian Innovation and Investment Agency, and billions in funding for new technologies being developed within the country.

The Budget in Context

The most recent iteration of the Budget places the government’s spending in the context of Canada’s recovery from the COVID-19 pandemic. Specifically, the federal government signalled its intention to focus its resources on attracting global investment into innovation and technology industries that are creating strong middle class jobs for Canadians. To that end, the Budget focuses largely on stimulating the economy through a mix of private and public investment in emerging and growth markets.

Growth Fund and Investment Agency

Perhaps the most notable commitment of funds made by the federal government in respect of the tech and innovation industries will be through the Canada Growth Fund. The Canada Growth Fund comes with a promise of over $15 billion to be invested over the next five years to attract significant private sector investment in furtherance of Canada’s economic goals. Most notably, the Budget places the growth fund centrally in attracting global private investment to support green technology innovation and help Canada attain its emissions reduction targets.

While details regarding the growth fund have been limited, the Budget stipulates that the fund will invest on a concessionary basis with the aim that for every dollar of public money invested in potential ventures, three dollars of private capital would be invested. Furthermore, the fund is not limited to investments of a given type with the Budget allowing for a broad suite of financial instruments to be used to further its goals. This includes all forms of debt, equity, guarantees, and other specialized instruments. The fund’s flexibility, in addition to its considerable capitalization, presents promising future opportunities for investment within Canada’s emerging technology industry.

While the Canada Growth Fund focuses on investment, the government also committed to new policy mandates that will assist with existing issues within the Canadian technology and innovation spaces. A common complaint in the Canadian technology ecosystem has been the inability to scale companies to become players in the global technology community. To address this concern, the Budget also commits approximately $1 billion over five years to create a “Canadian Innovation and Investment Agency” (the “Investment Agency”).

The Investment Agency is intended to be the new face of innovation investment in Canada and will assist stakeholders with developing and scaling new Canadian businesses within the technology and innovation spaces. Specifically, the Investment Agency will work with new and established Canadian businesses to help them take the steps necessary to scale their businesses. Within the Budget, the government provides examples of services that will be within the Investment Agency’s mandate. These include matters such as business feasibility analysis, market research support, and assisting companies with securing private and public funding to scale their businesses.

The Budget envisions the Investment Agency will emulate other global investment agencies such as the Israel Innovation Authority and the Finnish TEKES. Similar to these agencies, the Investment Agency will be independent from the government and feature private sector leadership and expertise to assist new Canadian innovation ventures through their growth. Further details on the Investment Agency’s specific budget and structure are expected to follow later this year. This will be a very important step toward allowing Canadian companies to compete on the global stage.

Clean Energy, New Research and Small Business Taxes

To further the government’s commitment to a carbon neutral Canada by 2050, the Budget features several monetary commitments towards clean energy technologies, public and private research into new green technologies, and scaling of these technologies across the various provinces and territories. Within the Budget, the government re-affirmed a $2.2 billion commitment to the Low Carbon Economy Fund designed to support projects and ventures that seek to reduce Canada’s greenhouse gas emissions. This commitment includes allocation of funds to businesses seeking to develop green technology.

The Budget also commits $35 million over four years for Innovation, Science and Economic Development Canada to assist Canada’s semiconductor tech production. This follows the previously announced $240 million the government committed in February towards strengthening Canada’s semiconductor and photonic production capabilities. In respect of Canada’s healthcare industry, the Budget also commits $30 million over four years towards connecting healthtech start-ups with hospitals and medical care centers across the country. The need for expediting these connections has become more apparent as a result of the COVID-19 pandemic.

While not limited to the technology and innovation sectors specifically, the government also introduced certain tax benefits that can be utilized by early stage ventures. Currently, Canadian small businesses can enjoy a lower 9% federal corporate income tax rate on their first $500,000 in taxable income. This rate is available to the business so long as it maintains taxable capital of $15 million or less. However, the Budget commits to increasing this threshold to $50 million moving forward. In other words, early stage ventures will be able to maintain access to their preferable tax rates for longer as their business scales.

Key Takeaways

The Budget represents Canada’s most recent efforts to raise the country out of a turbulent economic period brought on by the COVID-19 pandemic. To that end, the Budget places a great deal of emphasis on growing Canada’s tech and innovation sectors as a part of its economic recovery. Canada has committed a significant amount of capital and policy resources towards assisting businesses in the Canadian tech and innovation sector.

For assistance in navigating these developments, please contact any member of our Technology Group.

The author would like to thank Aryan Pour-Bahreini, Articling Student-At-Law, for his assistance in writing this Update.

Goodmans Technology Group

To assist clients in the technology sector, Goodmans brings together our acknowledged expertise in corporate/commercial, private equity, corporate finance, mergers and acquisitions, outsourcing, licensing, intellectual property, privacy, regulatory and media, cleantech, tax, litigation, human resources, corporate restructuring and administrative law. We do so both for innovative businesses in their start-up phase and for well-established businesses of all types. Goodmans continues to lead in the technology sector and is partnered with the DMZ at Ryerson University. The DMZ is a leading business incubator (selected by UBI as the top-ranked university incubator in the world), which connects its start-ups with resources, customers, advisors, investors, and other entrepreneurs. Goodmans is also a proud partner of IDEABoost, an initiative of the Canadian Film Centre’s Media Lab; building the next generation of technology-based media entertainment products, services and brands. Through these partnerships, Goodmans provides legal advice, mentorship and networking opportunities to assist start-ups in maximizing their potential. Goodmans is also an internationally recognized leader in other aspects of technology law and transactions. From our thought leadership, through participation on the Boards of associations such as CanTech (Canadian Technology Law Association), CORE (Centre for Outsourcing Research and Education), CIEG (Canadian Institute for Exponential Growth) and iTechLaw (International Technology Law Association), to our involvement in major technology procurement, joint venture and outsourcing transactions, to our representation, in court proceedings and in arbitrations, of major technology providers, and users of technology, in ground-breaking cases, our Technology Group is consistently at the forefront of leading technology transactions and cases. Members of our Technology Group are recognized as leading technology lawyers in Chambers Global, Lexpert, Legal 500 Canada, Legal Media Group’s The Best of the Best, The Best Lawyers in Canada, Law Business Research’s The International Who’s Who of Business Lawyers, and The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada, teach internet and communications law at Canada’s largest law schools, are regular lecturers at technology industry events and legal conferences, and have published articles in the technology law field.