Driving Innovation in Canada Guest column from the Chamber of Commerce of Brantford-Brant

Investing in innovation is key to a thriving economy.
 
The Chamber of Commerce of Brantford-Brant has a proposed policy resolution that will urge the federal government to expand and improve its investments in innovation. The resolution is a partnership with the Peterborough and the Kawarthas Chamber of Commerce and will be debated at the annual Canadian Chamber of Commerce (CCC) conference in October. If approved by the CCC membership, it becomes part of its advocacy efforts for the next three years.
 
The resolution:
 
Description
The federal government created an “Intellectual Property Strategy” to support and protect innovation across Canada. Improvements to the strategy must include an additional focus on federal investment and tax incentives, that will encourage business investment in intellectual property (IP) and innovation to improve productivity, economic growth, and incomes for Canadians.
 
Background
The “Intellectual Property Strategy” was an investment of $85.3 million over five years to help Canadian businesses, creators, entrepreneurs and innovators understand, protect and access intellectual property (IP) through a comprehensive IP Strategy. This strategy was announced in the 2017 budget with details released in the 2018 budget, and underwent a program review in the spring of 2023, with the results pending to be published.
 
In the Roadmap to Recovery document, the Canadian Chamber makes the following recommendation as an important step in nurturing recovery: “Adopting an “innovation box” regime that would reduce the corporate tax rate for income derived from patented inventions and other intellectual property connected to new or improved products, services and related innovative processes developed in Canada.”
 
The Intellectual Property Strategy has goals and recommendations in three areas: IP Awareness, Education and Advice; Strategic IP Tools for Growth; and IP Legislation. Recommendations within these areas lack information about the cost of potential investments.
 
In 2019-2020, $30M was slated to establish a pilot program called the “Patent Collective”. The collective will work with Canadian entrepreneurs to pool patents, so that small and medium sized firms will have better access to critical IP they need to grow in early stages without fear of infringing on a patent. The budget refers to this program as providing these businesses with the "freedom to operate". Program entry was limited to the first year, and applications closed after one year.
 
This strategy is still in its infancy and Canada remains 16th in innovation overall in the Global IP Rankings in 2023. The Index consists of five key sets of indicators to map the national intellectual property environment for the 28 surveyed countries by the US Chamber of Commerce.
 
Canada's support to business in this space lags behind the offerings of other countries that are ranked above Canada on this list. One of those differences is a “patent box” tax approach. A number of countries (the U.K., Belgium, Luxembourg, France, Spain, Hungary, Ireland, Switzerland and China) have adopted this approach which sharply reduces the normal corporate tax rate on income derived from the exploitation of patents. The Netherlands widened the policy to an “innovation box” to encompass a broader class of intellectual property.
 
The various “patent box” programs have been implemented provincially in Canada, but not yet adapted at the federal level. British Columbia has had a tax policy in place since 2006, Quebec included patent box policy in its 2016 budget, and has recently updated it to maintain a 2% reduction in the corporate income rate for R&D activities carried out in whole or in part in the province, and Saskatchewan announced patent box tax policy in its 2017 budget, and recently updated it to include a 10-15-year eligibility window.
 
The reference to “box” comes from having to tick a box on the tax form that indicates this type of revenue is being claimed. The types of profits that qualify for the lower tax rate, and how acquired intellectual property is treated, differ significantly among countries and provinces.
 
Additionally, the “patent box” rate varies considerably among nations and provinces. Finally, some countries put caps on the total tax relief companies can receive from patent boxes. In the case of Saskatchewan, the provincial government has installed time limits on the number of years of tax relief that can be attached to a patent.
 
In the 2021 Federal Budget, the government committed to study a national patent box program; however, this study has not yet started. The Parliamentary Budget Officer found that a Patent Box program to reduce the corporate tax rate by half to 7.5% for large corporations and 4.5% for small business, applied to profits generated from R&D developed and patented in Canada, would cost $242 Million over five years. This investment in a national incentive will improve international competitiveness, support business investment in research and help bridge the commercialization gap between concept, patent, and delivery to market, by supporting new economic activity and tax revenue to offset the immediate expenditures of the proposal. The government could also apply the savings that will be realized from streamlining the SR&ED tax incentive program to offset all the immediate revenue cost of this proposal, and complement the existing SR&ED Investment Tax Credit program— firms would have an incentive to base their R&D activities in Canada and to commercialize them in Canada.
 
The federal “Innovation Strategy” also has a goal to double the number of high-growth firms in Canada from 14,000 to 28,000 by 2025. High-growth firms are the most likely to innovate, sell globally and invest in people creating more and better paying jobs. A secondary goal is to achieve growth in intellectual property applications and have these companies base their R&D and commercialize their innovation in Canada.
 
A federal “My First Patent Program” could help achieve this. Quebec funds such a program with the following parameters: Quebec SMEs with 250 or fewer employees that are able to demonstrate research and development efforts completed or in part can apply for a non- repayable contribution of up to 50% of eligible expenses, to a maximum of $25,000 for patent application projects, industrial design registration or integrated circuit topography.
 
This policy resolution was renewed at the 2017 and 2020 national conventions, and it continues to propose key solutions to help Canadian businesses develop and protect IP.
 
Recommendations
That the Government of Canada:
1. Complete the study on a national “patent box” strategy to encourage business investment in innovation in Canada by 2025, to be implemented for 2026.
2. Consult with senior business leaders and technologists to define what intellectual property would qualify, e.g., patents, copyright, industrial design, and for what duration.
3. Ensure that any such regime adopted in Canada delivers the clarity and simplicity that encourages participation in innovation from both SMEs and large companies.
4. Develop a federal program modelled after the “My First Patent Program” using the Quebec model as a template to encourage more investment by SMEs across the country.
5. Review the Patent Collective Program and update funding to meet the needs of new potential innovators.