Overview of Changes to Federal Innovation Funding
This document outlines how the proposed Federal 2012 budget changes are likely to affect technology focused businesses in Canada. One of the key goals for the Budget was to achieve a revenue-neutral redistribution of research and development (R&D) incentive funding. In general, the proposals reallocate a portion of the financial innovation resources away from tax credits and curiosity-based research and toward direct government grants, access to capital programs, government procurement methods, and increasing private-public research collaborations.
Increased Funding of Government and Private Venture Capital
The Government recognizes the critical importance of access to capital in promoting high-growth, innovative businesses. It is commonly acknowledged that a “valley of death” exists in Canadian innovation funding at the point where new technology has been demonstrated as feasible but is not sufficiently proven to gain enough investment to achieve commercial viability. In light of this, the 2012 Budget proposes two measures to address Canada’s limitations in this area:
• $400 million in funds to support private sector early-stage and venture capital investing,
• $100 million in funding to the Business Development Bank of Canada (BDC) to support its venture capital activities (previously announced).
The structure of the private sector funding is yet to be determined but it is proposed to span the range from seed investment to large-scale venture capitalism.
Expanded Financial Support for and Re-Focusing of the National Research Council (NRC)
The Budget proposes that the National Research Council Industrial Research Assistance Program (NRC-IRAP) receive an additional $110 million per year in funding, doubling the support the program distributes to small and medium sized businesses.
It is also proposes that the NRC redirect its own research efforts more towards business-driven, industry-relevant areas. The Budget provides a separate allocation of $67 million to assist the NRC to make this shift.
Increased Support for Innovative Businesses in Western Canada
A section in the 2012 Budget observes that Western Canada does have a regionally targeted development program that is equivalent to those available in other areas of the country. To address this limitation, the Budget announces the upcoming launch of the Western Innovation Program, to be administered by Western Economic Diversification. Program details will be forthcoming.
Partial Redirection of SR&ED Funds to Other Programs
In keeping with the Government’s objective to shift a portion of its innovation incentive funding away from tax credits and into direct funding methods, the 2012 Budget proposes to reduce SR&ED spending by roughly 14%. It should be noted that the proposals to date do not appear to substantially decrease the complexity of the program. For further information refer to the TSGI post discussing the affect of the Budget on the SR&ED program found here.
Increased Support for Private-Public Research Collaboration
A number of initiatives are included in the 2012 Budget to improve the general level of private-public research collaboration. A number of industry specific initiatives are also targeted for increased funding. These changes include the following:
• $14 million over two years to the Industrial Research and Development Internship program (largely delivered by Mitacs).
• $12 million per year in funding to make the Business-Led Networks of Centres of Excellence program permanent. This program focuses on linking innovative businesses to Canadian research resources.
• $105 million over two years to support innovation in the forestry industry. The Budget proposes to cut the number of funded initiatives from five to the following two: The Expanding Market Opportunities Program and the Forest Innovation Program.
Increased Support for Innovation Through Government Procurement
The Canadian Innovation Commercialization Program (CICP) currently promotes technology commercialization by assisting small and medium sized businesses to sell goods and services to Government agencies that have needs for innovative products. The focus of the program has been civilian until this point but a military component is proposed for the future. The Budget allocates $95 million in additional funding to support the CICP for the three years starting in 2013. Thereafter, additional funding of $40 million per year is proposed.
Support for Research, Education and Training
In addition to the changes in funding for research and development in the commercial setting, the Budget proposes funding changes for academic research, education and training. The most relevant of these changes to the business community is the provision of $37 million to the post-secondary granting councils to support industrial-academic research collaborations.
Other Commercial Innovation Funding Measures
The 2012 Budget includes other proposals for changes to research, education and training funding. Interested parties should contact the Government of Canada for further information.
Note: TSGI does not maintain this news article after its initial posting. Readers are further advised that the information presented here may not be sufficient for unassisted tax planning. Please contact a TSGI representative if you require clarification or other assistance regarding this topic.