Federal Budget 2025: Strengthening Canada's Innovation, AI, And Intellectual Property Ecosystem

The 2025 Federal Budget (the "Budget") outlines the Government of Canada's most significant innovation-focused investments in recent years. It emphasizes artificial intelligence ("AI"), quantum computing, intellectual property ("IP") protection, venture capital growth, and major reforms to the Scientific Research and Experimental Development ("SR&ED") tax incentive program.

These measures collectively aim to strengthen Canada's innovation ecosystem, improve commercialization pathways, and promote domestic ownership of intellectual property.

1. Investing in AI and quantum technologies

The Budget commits $925.6 million over five years to develop sovereign AI compute capacity, ensuring that Canada maintains secure and competitive infrastructure to support domestic AI innovation. Key measures include:

• building large-scale sovereign public AI infrastructure to support both public and private research;
• authorizing the Minister of Artificial Intelligence and Digital Innovation to identify and support strategic AI infrastructure projects through new Memoranda of Understanding with industry;
• enabling the Canada Infrastructure Bank to invest in AI infrastructure projects; and
• allocating $25 million over six years for Statistics Canada's new Artificial Intelligence and Technology Measurement Program (TechStat) to assess AI's impact on the economy and workforce.

In parallel, $334.3 million over five years will be provided through the Defence Industrial Strategy to bolster Canada's quantum ecosystem, recognizing the technology's transformative potential in fields such as cybersecurity, finance, and logistics.

2. Protecting and commercializing Canadian intellectual property

The Budget reinforces the importance of domestic IP generation and ownership as drivers of long-term competitiveness. Key measures include:

• $84.4 million over four years (starting 2026–27) to extend the Elevate IP program, supporting accelerators and incubators that help small and medium-sized enterprises ("SMEs") develop IP strategies;
• $22.5 million over three years (starting 2026–27) to renew support for the Innovation Asset Collective's Patent Collective, which assists firms in leveraging patent portfolios and navigating global IP systems; and
• $75 million over three years (starting 2026–27) to extend the National Research Council's IP Assist Program, providing direct advisory support to SMEs on protecting and commercializing their IP.

The government also plans to conduct an Intellectual Property Performance Review to explore new mechanisms for:

• partnering with IP-intensive firms;
• retaining and commercializing IP in Canada; and
• supporting firms in protecting and exploiting IP in foreign markets.

Finally, the Budget emphasizes improving legal certainty and transparency in the IP system to facilitate IP-backed financing and curb abusive practices.

3. Enhancing the SR&ED tax incentive program

The SR&ED program remains Canada's most important research and development ("R&D") incentive, providing over $4.2 billion annually in support to businesses conducting scientific and technological research.

The Budget confirms and introduces several enhancements to increase the program's impact:

• raising the enhanced credit expenditure limit from $3 million to $4.5 million;
• extending the enhanced 35% tax credit to eligible Canadian public corporations;
• restoring eligibility for capital expenditures under the program; and
• increasing the prior-year taxable capital phase-out thresholds for enhanced credit eligibility.

These reforms represent an ongoing annual investment of $440 million and are expected to generate approximately $1.2 billion in economic output each year.

Administrative reforms

Recognizing concerns about the SR&ED program's complexity and uncertainty, the Canada Revenue Agency(the "CRA") will implement significant administrative improvements as of April 1, 2026:

• introducing an elective pre-claim approval process to provide up-front technical approval of eligible SR&ED projects;
• reducing processing times for approved claims to 90 days (from 180 days);
• leveraging AI to streamline claim reviews and reduce unnecessary audits; and
• simplifying information requirements and revising Form T661 to make the process less burdensome.

These changes are designed to provide greater predictability and efficiency for businesses making R&D investment decisions.

4. Scaling Canadian innovation and venture capital

To address early growth-stage funding gaps and promote the next generation of Canadian technology firms, the Budget proposes:

• $1 billion over three years for the Venture and Growth Capital Catalyst Initiative, a fund-of-funds managed by the Business Development Bank of Canada to mobilize private venture capital, including from pension funds and institutional investors; and
• $750 million over three years to support a new strategy focused on early growth-stage firms, with details to be announced in 2026.

These investments aim to enhance capital access for emerging fund managers and high-growth sectors such as life sciences and advanced technology.

5. Implications for Canadian innovators and IP stakeholders

The Budget reflects a cohesive national effort to strengthen the link between R&D investment, intellectual property generation, and commercialization. For technology companies, research institutions, and IP-intensive businesses, the practical takeaways include:

• expanded SR&ED incentives and a more predictable claims process;
• improved access to AI compute resources and potential funding partnerships;
• renewed IP advisory and collective programs to protect and leverage intangible assets; and
• enhanced venture capital pathways to help scale IP-driven firms domestically.

Together, these measures represent a material step toward establishing Canada as a global hub for innovation, AI leadership, and IP commercialization.

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