The federal government’s Budget 2025 includes a new “productivity super-deduction” that would allow businesses to write off a larger share of capital investments and do it faster.

The productivity tax deduction and other measures in the budget will reduce Canada’s marginal tax rate from 15.6 percent to 13.2 percent, lower than the rate in the U.S. and the OECD average, the government said.

The tax deduction includes 100-percent first-year expensing for manufacturing machinery, zero-emission vehicles, patents and capital spending for scientific research.

In total, the budget promises to invest $110 billion over five years in “productivity and competitiveness” initiatives, which the government hopes will catalyze $500 billion in private sector investment by 2030.

Budget 2025 was tabled on November 4 in the House of Commons by Finance Minister François Phillipe Champagne (photo at right). 

Budget 2025’s measures include long-awaited reforms to the Scientific Research and Experimental Development (SR&ED) tax credit program.

The changes include extending eligibility to public corporations and letting more firms continue to claim the maximum benefit as they grow. Companies also will be able to apply the refundable credit to more of their expenses, with an increase in the annual limit to $6 million from $3 million.

Budget 2025 also includes a $1.7-billion, 13-year plan – beginning with $879 million over the next five years – dedicated to recruiting international researchers.

The plan includes $1 billion for the federal Tri-agency to launch an accelerated research Chairs initiative – aimed at attracting more than 1,000 highly qualified international researchers – starting in 2025-26.

The budget also proposes to provide the Tri-agency with $133.6 million over three years, beginning in 2026-27, to assist international doctoral students and post-doctoral fellows to relocate to Canada, and additional funding to recruit international assistant professors if necessary.  

Budget 2025 also redirected $97 million over five years from existing resources to create a Foreign Credential Recognition Action Fund.

The federal government will work with the provinces and territories to make credential recognition fairer, faster and more transparent, helping qualified foreign-trained professionals contribute more quickly to Canada’s workforce, including in fields facing labour shortages such as health care and construction.

The U15 Canada group of 15 research universities said it welcomed the “ambitious talent recruitment strategy” outlined in the budget. “We are pleased to see the government recognize that investing in highly-qualified talent is the foundation for Canada’s future prosperity, resilience, and security.”

U15 Canada also welcomed the government’s intent to limit the impact of spending cuts on the federal granting agencies and maintain the planned investments in core research grants announced in last year’s budget. This recognizes the foundational role a vibrant research community can play through sustained support for fundamental research, U15 Canada said.

“In a moment when the global economy is undergoing a profound transformation and Canada is facing the urgent need to secure its economic future, today’s investment signals a decisive step toward reinforcing Canada’s position as a global destination for research excellence,” Robert Asselin, CEO of U15 Canada, said in a statement.

New funding focused on talent and health welcomed

Research Canada also welcomed the government’s new International Talent Attraction Strategy and Action Plan to help attract top-tier international researchers.

“This $1.7-billion initiative has the potential to position the country to capture both scientific and economic returns from world-class talent,” said Alison Evans, president and CEO of Research Canada.

The budget also responds to the health research and innovation community’s urging for measures

that help move research outputs along the value chain, she said. These measures include:

• $656.9 million to Innovation, Science and Economic Development to spur commercialization of dual civilian-military solutions across aerospace, artificial intelligence, biodefence, and life sciences and other key industries.
• Accelerated pathways for holders of the U.S. H1-B visa to help strengthen innovation, address labour shortages, and attract top talent in health, research and advanced industries.
• $5 billion for the Health Infrastructure Fund to help provinces and territories better service Canadians through enhanced hospital and emergency room infrastructure.
• $80 million over four years for the Marathon of Hope Cancer Centres Network of the Terry
• Fox Research Institute to accelerate precision medicine across the country to improve survival and quality of life for Canadians diagnosed with cancer.
• $1 billion for the Business Development Bank of Canada for a new Venture and Growth
• Capital Catalyst Initiative to leverage more private venture capital and support new and emerging fund managers in key sectors such as life sciences.

“We are also pleased to see Prime Minister Carney acknowledge the life sciences as a priority area where Canada has immense talent and potential,” Evans said. “Today’s announcements are a

strong step toward realizing the potential of the Canadian Health Economy.

The Council of Canadian Innovators (CCI) said the budget represents an important step toward building trust with Canada’s innovators and the broader business community.

“For the first time, we’re seeing the federal government embrace a serious conversation about economic sovereignty – and that shift in focus is both welcome and overdue,” Benjamin Bergen, CCI president, said in a statement.

“We are pleased to see meaningful progress on priorities that CCI and our members have been advocating for. The government’s commitment to SR&ED reform demonstrates that they’ve been listening to innovators,” he said.

The procurement efforts to buy strategically from Canadian firms – paired with the government’s Buy Canadian policy – “represent exactly the kind of intentional, strategic approach that can make a difference,” Bergen said.

“These must not be symbolic gestures, and require substantive policy shifts for business leaders to see these promises realized,” he said.

When it comes to attracting international students, Budget 2025 significantly reduced the number of international study permits by 65 per cent for 2026 in its first federal budget, Hannah Liddle, assistant editor for University Affairs, pointed out in an article.

The new plan reduces the number of allocations for new international study permits from the targeted 437,000 in 2025 to 155,000 in 2026 and 150,000 in each of 2027 and 2028.  

The new targets are a major departure from the previous projections of 385,000 in 2026 and 370,000 in 2027 and 2028.  

“The reduced targets are likely to have devastating financial consequences for Canadian universities, many of which have been facing financial crises in recent years,” Liddle said.

Budget offers no update on Canada Innovation Corporation or new details on the capstone research funding organization

Budget 2025 had no update on the Canada Innovation Corporation (CIC) and provided no new details on a proposed new capstone research funding organization to provide better coordination across the federally funded research ecosystem.

[Editor’s note: See today’s story, “New federal innovation agency needed to deliver core business support programs and work with entrepreneurs”].  

Both measures were recommended by the federal Advisory Panel on the Federal Research Support System, chaired by Frédéric Bouchard, Dean of the Faculty of Arts and Sciences and professor of philosophy at the Université de Montréal, in its report (the “Bouchard report).”

The National Angel Capital Organization (NACO) welcomed the government’s “intention to develop a strategy to support Canadian firms facing early growth-stage funding gaps,” through $750 million in support of Canada’s early-stage entrepreneurs and the networks that fund them.

“This $750 million announcement is a timely and strategic investment in Canada’s angel infrastructure. It recognizes that when we support the networks and investors behind early-stage companies, we strengthen the entire innovation economy,” said Claudio Rojas, CEO of NACO.

According to Budget 2025 federal business innovation programs that have accomplished their aims or have been superseded by other programs won’t get renewed. Some parts of the Global Innovation Clusters and the Strategic Innovation Fund will be cut, including the New Zero Accelerator initiative.

Budget 2025 allocates $5 billion over six years, starting in 2025-26, for the Strategic Response Fund, a new program with flexible terms to help firms in all sectors and regions impacted by tariffs to adapt, diversify and grow.

The budget also proposes a new Office of Digital Transformation to lead the adoption of artificial intelligence and other new technologies across government.

The budget includes a $925.6-million investment over five years to fund sovereign public AI infrastructure, improving access to compute capacity for researchers and innovators. The Canada Infrastructure Bank will also be enabled to invest in AI infrastructure.

The government said its new Buy Canadian Policy will ensure public dollars will be used to strengthen Canada’s supply chains, and support homegrown innovation. When the government spends, it will select Canadian suppliers by default, wherever possible, the budget stated.

Budget 2025 proposes to provide $79.9 million over five years, starting in 2026-27, to Innovation, Science and Economic Development Canada to support a new Small and Medium Business Procurement Program.

“The result is more taxpayer dollars will go toward nation-building infrastructure, clean energy, innovation, productivity, and less on day-to-day operating spending,” the government said.

Budget 2025 projects a deficit of $78 billion for 2025-26

However, the Canadian Federation of Independent Businesses (CFIB) said most of Budget 2025’s measures “were reannouncements from 2024.”
Budget 2025 “was a missed opportunity to provide meaningful tax relief to Canada’s employers,” Dan Kelly, president of CFIB, said in a statement.

The government could have taken the reins by reducing the small business corporate tax rate, freeing up millions of dollars for investment in employees, technology and operations, he said.

“Government finances are a mess, but the budget just slows the growth in program spending with overall deficits above $50 billion per year as far as the eye can see,” Kelly said. “Small firms have learned the hard way that today’s deficits are tomorrow’s taxes.”

Other concerns the CFIB has about Budget 205 include:

• The $51-billion Building Communities Fund is to focus on projects using unionized labour, which would effectively exclude 90% of small businesses.
• The $1-billion Regional Tariff Response Initiative delivered by Regional Development Agencies misses the mark and excludes over half of small businesses that will be deemed too small or in the wrong sector.
• The Canadian Entrepreneurs’ Incentive announced in budget 2024, repeated in the Fall Economic Statement and confirmed as recently as January 2025, has now been officially cancelled. The incentive would have reduced the taxable portion of a capital gain on the sale of qualifying businesses.

The 493-page budget document projects a deficit of $78 billion for 2025-26, which is forecast to drop to $65 billion next fiscal year and then gradually fall to $57 billion in 2029-30. 

The budget also calls for some $141 billion in new spending over the next five years, offset by about $51 billion in cuts and other savings.

Budget 2025 earmarks $81.8 billion for defence over five years, roughly $72 billion of which is new money.

The budget states that $334.3 million will be set aside over five years to “strengthen Canada’s quantum ecosystem” as part of the government’s new defence industrial strategy, to be fleshed out later this year. 

The budget allocates $10.9 billion over five years for digital infrastructure upgrades to the Department of National Defence, the Canadian Armed Forces, and the Communications Security Establishment for modernizing capabilities, including cyber defence. 

The government has also renewed funding for two intellectual property programs that were due to end early next year, including $84.4 million over four years for ElevateIP to help startups strategically manage their intellectual property and $22.5 million over three years for the Innovation Asset Collective’s Patent Collective program. 

The federal public service will see a drop in about 40,000 positions over the coming years, according to Budget 2025. The budget projects the public service will have 330,000 employees in 2028-29, down from the 368,000 counted last year.

Amid rising youth unemployment, the budget commits $594.7-million over two years to create 100,000 summer jobs for students.

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