Innovation highlights: what’s in it for you?

The Trudeau government’s budget for 2017 doesn’t appear to offer much for manufacturers to get excited about. Tax rates remain static, the capital gains tax was left as-is and there aren’t any changes to the popular accelerated capital cost allowance for new machinery and technology. But the budget does provide room to manoeuvre, and there are useful measures for ramping up innovation.

First, some caution is warranted. Jim Menzies, a partner and Canadian manufacturing industry leader at Grant Thornton Canada LLP in Toronto, warns there could be significant implications for manufacturers should the US drastically reduce its corporate tax rate to 15%, well below the 27% Canadian benchmark.

“The fact that the government didn’t tinker with corporate taxes is a big positive,” Menzies says. “It doesn’t, for the time being at least, have US companies operating in Canada considering a move home. But if the US drops tax rates significantly, all bets are off: Canada loses its tax advantage and that will have a significant impact on jobs and investment here.”

Looking beyond the Trump factor, there are some elements in Budget 2017 manufacturers should be happy with. The plan outlines the government’s vision of Canada as a high-tech, highly skilled, innovation player providing advanced products and services to the world. Policies are designed to streamline access to government funds.

“The government is taking an extremely successful approach to innovation,” says Martha Oner, a partner and national leader of R&D and government incentives at Grant Thornton LLP (Canada) in Kitchener, Ont. “The strategy creates a one-stop shop, which alleviates a lot of pain for a lot of companies frustrated by the historical lack of clarity and what’s required to apply for these programs.”

A group of superclusters combine to create the Innovation Canada platform. The plan earmarks $950 million to accelerate growth in six sectors, including advanced manufacturing, clean technology and digital technology. None of the money is new – $800 million is drawn from last year’s quota for innovation, while another $150 million comes from public transit and green infrastructure allocations.

Oner is a fan of the supercluster approach, pointing to the success of Communitech in Kitchener, Ont. The hub consists of more than 800 companies in the information technology, digital media, biomedical, aerospace, environmental technology and advanced manufacturing sectors. It aims to connect them with government agencies, academic institutions, tech incubators and accelerators.

That means significant funding dedicated to the development of technologies related to the Internet of Things and artificial intelligence, which will align with developments in the global manufacturing space.

Canadian Manufacturers & Exporters (CME) is also pleased with the supercluster approach.

“We expect government will work with manufacturers to get this cluster off the ground quickly, and the need is urgent,” says Dennis Darby, CME’s CEO.

He notes 36% of CME’s membership has identified the cost and risk of seeking new opportunities as a leading domestic barrier to achieving export success.

Programs consolidated

For automotive and aerospace manufacturers, the Strategic Innovation Fund combines four previous funds into a five-year initiative worth $1.26 billion. The intention is to consolidate existing business innovation programming from programs including the Strategic Aerospace and Defence Initiative, Technology Demonstration Program, Automotive Innovation Fund and Automotive Supplier Innovation Program.

To support the program expansion, the budget will provide another $200 million over three years to supplement existing funding, of which $100 million will be new funding and $100 million drawn from the $1 billion to support clean technology announced in Budget 2016. Refundable and non-refundable assistance will be provided based on risk sharing.

CME is confident the fund, still available to the aerospace and automotive sectors, will attract new, high-quality business investments, while expanding to other emerging sectors such as clean technology and agri-food.

Another initiative of note is the private sector Canadian Business Growth Fund, designed to fill the gap between small-scale start ups and mid-tier corporations.

“There’s a significant lack of funding in this space, where most smaller firms are depending on friends, family or angel investors to grow, and are eventually acquired by larger firms,” says Oner. “We’re not seeing the reinvention of small and medium-sized businesses that create jobs and sustain the tax system.”

A group of Canadian banks and insurance companies have created the fund and plan to invest up to $1 billion over the next decade.

Investments in SMEs will finance growth and scale up existing operations. Typical investment amounts will range between $3 million and $20 million.

Although described as a stand pat, status quo affair, Budget 2017 does offer some features that manufacturers should take advantage of to help them get ahead, despite the uncertainties arising from the Trump administration.