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12 June 20253 minute read

Post 2025-election – Tax policies expected under the new Canadian Government

Canadians elected a new federal government on April 28, 2025. The election platform of the new Liberal government contained several proposed tax initiatives intended to foster economic growth and jurisdictional competitiveness within the innovation sectors and emerging markets. The key tax-related proposals include the following (details on how these tax proposals will be implemented have not been released yet):

Scientific research and experimental development (SR&ED)

Canada’s current SR&ED regime provides corporations a 15 percent non-refundable tax credit on qualified SR&ED expenditures. Corporations that are Canadian-controlled private corporations (“CCPCs”) benefit from an enhanced refundable tax credit at a rate of 35 percent on up to $3 million of qualified SR&ED expenditures (“Expenditure Limit”).

In the 2024 Fall Economic Statement, the previous Liberal government announced plans to improve CCPC access to SR&ED tax credits by increasing the Expenditure Limit from $3 million to $4.5 million. The new proposed measures would aim to further increase the Expenditure Limit to $6 million, allowing CCPCs to claim up to $2.1 million in fully refundable tax credits.

Flow through shares expansion

Historically, the flow-through share regime was designed to attract investment for the natural resources industries, such as mining and oil & gas. Essentially, flow-through shares offer tax incentives to investors by allowing corporations to renounce or “flow-through” certain income tax deductions, which can be used to offset the investors’ taxable income. An investment tax credit may also be available to investors, depending on the activities of the corporation.

The new proposed measures would look to expand the flow-through share regime to improve the ability of innovative industries (including businesses in artificial intelligence (“AI”), quantum computing, biotech, and advanced manufacturing) to raise capital. Further details are currently unavailable, but this expansion could potentially overlap with the SR&ED regime.

Intellectual property – Patent box regime

Encouraging innovation and retaining Canadian intellectual property (“IP”) in Canada is a key goal with the current government. Specifically, the proposed measures would look to bring IP back to Canada by creating a Canadian patent box, which provides for preferential tax rates applicable to income generated from certain types of IP. It is anticipated that IP within the pharmaceuticals, AI, quantum computing and clean tech will likely be included in the Canadian patent box.

Artificial intelligence tax credit

AI will undoubtedly play a huge role in the new economy. The new government intends to encourage the adoption of AI by introducing a new 20 percent AI deployment tax credit for small and medium-sized businesses. The AI deployment tax credit will be available to companies involved in qualifying AI adoption projects, provided the company can demonstrate that it is creating jobs.

Tax administration and enforcement

In addition to the proposed measures described above, the new government intends to review the corporate tax system in order to fix loopholes, better identify instances of tax evasion, and strengthen enforcement. Additionally, the government intends to lead an international effort to develop a fair and consistent set of tax rules, as proposed by the Organisation for Economic Co-operation and Development.                   

The above-noted proposed measures may impact both individuals and corporations. While the timing of these measures remains uncertain, they will likely be included in the next federal budget (set to be released in the fall).

If you have any questions about these proposed measures, please contact any member of our National Tax Group.

 

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