Canada’s technology industry can look forward to the federal government investing half a billion dollars’ into the country’s digital infrastructure, more than $70 million into workforce training, increased startup funding and support — and to retaining a lower tax rate on stock options, under the budget released Tuesday by Liberal finance minister Bill Morneau.
“From a tech sector point of view, there are several things that were included that are actually very good for the industry,” says Information Technology Association of Canada (ITAC) president and CEO Karna Gupta, whose organization met with several members of the federal government during its budget consultation process and submitted a report to the ministry of finance summarizing its suggestions for the budget. “In fact, they’re fairly consistent with our submission.”
Of particular note is the government’s “Helping High-Impact Firms Scale Up” initiative, says Gupta, which aims to coordinate federal financing and advisory services to support “innovative” firms – such as the following case study from the tech industry.
“An Ontario company that develops technology to instantaneously analyze manufacturing data approaches the National Research Council’s Industrial Research Assistance Program for assistance,” the budget says. “The company has experienced exponential growth over the last five years but is now struggling with access to working capital. The High-Impact Firm Initiative connects the company with financing solutions offered by the Business Development Bank of Canada, which enables the company to access the working capital it needs.”
Five other initiatives are also likely to prove a boon to the tech industry, Gupta says, all of them scheduled to be begin during the 2016 – 2017 fiscal year:
- “Improving Access for Rural Communities to the Digital Economy,” which will dedicate up to $500 million over the next five years to fund a new program that will extend and enhance broadband service in rural and remote communities. “That will have a very significant impact, both in the industrial sector and the community,” Gupta says.
- “Increasing Co-op Placements and Strengthening Work Integrated Learning,” which will invest $73 million over four years into “building partnerships between employers and willing post-secondary educational institutions to better align what is taught with the needs of employers,” according to the budget. The initiative will also support new co-op placements, with a focus on high-demand fields such as science, technology, engineering, and mathematics, with further support expected from the government’s innovation agenda.
- “Linking Canadian Technology Companies to Global Markets and Expertise,” which will provide $4 million over two years to renew the Canadian Technology Accelerator Initiative, which provides mentorship, introductions to potential clients and/or partners, and desk space to Canadian life sciences and clean technology firms hoping to expand into the U.S., U.K., France, or India.
- The government’s commitment to providing $50 million in funding over the two years to Canada Health Infoway, the not-for-profit corporation created in 2001 to accelerate the development and adoption of electronic health systems. “This is a big win for us, because we actually called for that program,” Gupta says.
- “Investing in Government Information Technology,” a $383.8 million investment over the next two years to support government-related systems, data centre, and telecommunications network upgrades.
As requested, the Liberals have also committed to supporting scientific research and development, and as predicted, dropped their proposal to fully tax individual stock option gains exceeding $100,000, an initiative which had been controversial in the tech industry.
As noted in a previous feature on ITBusiness.ca, tech companies – especially startups – frequently rely on stock options to compensate their top talent, a fact that Morneau himself acknowledged to reporters.
“I heard from many small firms and innovators that they use stock options as a legitimate form of compensation, so we decided not to put that in our budget,” the finance minister told reporters, including the Globe and Mail, adding that increasing options taxes in future budgets was “not in our plan.”
“Overall, [the budget] has a lot of potential,” Gupta says. “We need to work through the details… but generally, and I think from ITAC’s point of view, we’re quite pleased with the budget’s key focus on the tech sector.”
Russ Roberts, senior vice-president of advocacy for the Canadian Advanced Technology Alliance (CATA), was more encouraged by what the budget didn’t specify than by what it did – particularly the lack of detail in the “Helping High-Impact Firms Scale Up” initiative, which he says indicates the government intends to conduct a review that will decide precisely what “high-impact” means.
“It’s an important budget, because it’s laying out a review – a very extensive review – of the government’s support programs for innovation over the next year,” Roberts says. “We have been looking for such a review, particularly one that focuses on [Scientific Research and Experimental Development (SR&ED)] tax incentives, which are included… They’ve brought in some interim programs while they do the review, but the essence of what’s going to happen is that we’ll have to wait and see where they get to.”
“It also means an awful lot of work for all of us to bring good ideas to them over the next six months or so,” he continues. “I don’t know the timeframe, but after reading it I’d say the next six months are going to be an important period.”