Canada Elects 2025: Tax Policies Poised to Shape Canada’s Innovation Economy
In a historic election, given the backdrop of rising tensions between Canada and the US, Canadians elected Mark Carney and his Liberal party on April 28, 2025. Although the platform released by the Liberals (the Liberal Platform) was light on personal and corporate tax proposals, it did contain several tax policies that focus on innovation and emerging industries. Investment in Canada’s biotech and life sciences industry and other innovative industries is needed if Canada wants to prosper and attract talent. Although the Liberals were elected to a minority government, the tax proposals promoting economic growth and innovation seem to cross party lines.
Here are three important tax proposals (that innovative companies and their investors need to know:
1. The Creation of a Patent Box Regime
Currently, Canada’s tax regime provides little incentive for the commercialization of intellectual property (IP) and often companies transfer valuable IP out of Canada to lower tax jurisdictions for future growth and profit. To combat this, the previous Liberal government held public consultations in 2024 regarding the creation of a “patent box” regime. Such a regime is designed to give preferential tax treatment to incentivize companies to commercialize and keep intellectual property (IP) in Canada. Following these consultations, the Liberal Platform outlines its intentions to implement this regime.
Details are currently light, however, similar to the UK and some EU members, the combined corporate tax rate could be reduced to 15% on income generated from qualifying IP assets in Canada. This incentive bets on IP-centered businesses as drivers of economic growth in Canada, encourages both Canadian and foreign-based companies to retain their IP assets in Canada, spurs commercialization of homegrown research and development, and attracts talent to Canada. The patent box regime would work in tandem with the current Scientific Research and Experimental Development (SR&ED) regime, which focuses on scientific research and innovation and not commercialization.
2. Flow-through shares for innovative industries
In a unique expansion of the current flow-through share tax regime available in the exploration sector, the Liberal Platform proposes to allow innovative industries, such as AI, quantum computing, biotechnology and advanced manufacturing, to issue flow-through shares to the public. Flow-through shares are a financing tool that allow emerging industries to raise capital. Flow-through shares allow companies to pass on tax deductions for development expenses to their investors, which incentivizes investment, reduces the risk of investing in innovative Canadian companies and allows companies to issue shares at a premium. They have typically been issued by pre-revenue development-heavy startup companies in need of capital that do not yet have taxable income to use their expenses to offset.
Again, details are currently light, but presumably the regime would operate in the same manner as other industries and likely have an overlap with the SR&ED regime. There is a potential for “stacked” tax incentives if integration with SR&ED is permitted, which could supercharge the incentives available to businesses.
3. Larger R&D refunds for Canadian-Controlled Private Corporations
Currently, Canadian-controlled private corporations can receive a 35% refundable tax credit on up to $3 million of eligible R&D expenditures — equivalent to $1.05 million in refundable credits.
The Liberal Platform proposes to double the expenditure cap to $6 million, allowing eligible businesses to receive up to $2.1 million in cash refunds annually. This is even higher than the $4.5 million cap contained in the previous Liberal government’s fall economic statement announced before the government was prorogued. What is not included in the Liberal Platform is a promise to expand the enhanced refundable tax credit to public companies (which was included in the fall economic statement). This suggests that the Liberals may be focused on growing Canadian private enterprises.
What’s Next?
All proposed tax measures are expected to take effect on July 1, 2025. A federal budget is anticipated before the effective date, which should offer more concrete details on these initiatives, including potential legislation and detailed implementation timelines.
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