Mobilizing Science and Technology to Canada's Advantage: Progress Report 2009

Entrepreneurial Advantage — Making Canada a World Leader in Innovation through Science and Technology

Canada's ability to gain a competitive advantage in the modern economy increasingly depends on our ability to translate knowledge and ideas into commercial products that will generate wealth and improve the lives of Canadians and others around the world.

The Science and Technology (S&T) Strategy recognizes that the private sector plays a central role in meeting this challenge by investing in leading-edge research and development (R&D) and bringing innovations to market. Over the last two years, the Government of Canada has made substantial efforts to build this Entrepreneurial Advantage by putting in place conditions that encourage private sector investment in S&T.

By encouraging entrepreneurs to innovate and market their products to the world, the government can maximize the benefits from its investment in skills and research. The following section will outline the steps taken in three areas: creating a competitive and dynamic business environment; strengthening public–private research and commercialization partnerships; and increasing the impact and efficiency of federal research and development assistance.

Creating a Competitive and Dynamic Business Environment

A business environment that encourages innovation starts with an economic framework that supports investment, rewards success and reduces unnecessary red tape that can frustrate business initiative.

Today's businesses are competing in an increasingly global marketplace. For Canada to prosper in this complex and highly interconnected age, the Government of Canada must ensure that Canada's competition and investment policies reflect global realities and our national interest.

Modernizing Canada's Competition and Investment Policies

In June 2008, the federally appointed Competition Policy Review Panel released its final report, Compete to Win, which issued specific recommendations on how to strengthen Canada's economy. Based on these recommendations, the government introduced detailed proposals to modernize Canada's competition and investment laws. On March 12, 2009, the Budget Implementation Act, 2009 (Bill C-10) received royal assent, including significant amendments to the Investment Canada Act and the Competition Act. The legislative changes will boost Canada's competitiveness, stimulate investment, protect consumers and safeguard Canada's national security.

Specifically, the amendments to the Investment Canada Act included establishing a national security review mechanism; eliminating lower investment review thresholds for transactions in specific sectors; increasing transparency and ministerial disclosure; changing the basis for calculating the monetary threshold above which investments are reviewed; and increasing the review threshold for investments involving nationals of WTO members. Amendments to modernize the Competition Act included measures to make it easier to prosecute hard-core cartels, such as price-fixing conspiracies; permit administrative monetary penalties for companies that abuse their dominant position; align Canada's merger review process with peer jurisdictions by introducing a two-stage review process for complex transactions; and significantly increase penalties for deceptive or misleading advertising. These reforms will improve the competitiveness of Canadian businesses; better protect consumers; and make Canada a more innovative, productive and prosperous country.

Giving Canada an Investment Edge

To help increase foreign direct investment in Canada, the Government of Canada has:

Taken action to improve the competitiveness of Canada's business tax system, including significant reductions in the general corporate income tax rate, and has been encouraging provinces and territories to do the same
Enhanced the Scientific Research and Experimental Development (SR&ED) tax incentive program
Eliminated withholding tax on all interest paid to arm's-length non-residents
Ratified an update to the Canada–U.S. Tax Treaty that phases out withholding tax on interest paid to non-arm's-length U.S. residents and extends treaty benefits to limited liability companies

To better understand private sector innovation, the Council of Canadian Academies has recently produced a report on private sector innovation in Canada, entitled Innovation and Business Strategy: Why Canada Falls Short. The report examines Canada's weakness in productivity growth and suggests that it is due to business strategy choices.

Improving the Competitiveness of Canada's Business Tax System

Since 2006, the Government of Canada has introduced significant tax relief to position Canadian businesses for success — in 2009–10 alone, total tax relief for Canadian businesses, including the measures proposed in Budget 2009, will total more than $7 billion. In 2008–09 and the following five fiscal years, business tax relief will total more than $60 billion. Key initiatives include:

Substantial, broad-based tax reductions that are lowering the general federal corporate income tax rate from 22.12 percent (including the corporate surtax) in 2007 to 15 percent by 2012 to strengthen Canada's business tax advantage. These tax reductions include the elimination of the corporate surtax in 2008 for all corporations and a reduction in the general corporate income tax rate to 19 percent in 2009.
Support to encourage the growth of small businesses through a reduction of the federal income tax rate applying to qualifying small business income to 11 percent in 2008, and increases in the amounts of small business income eligible for the reduced federal income tax rate to $500 000 in 2009.
A temporary 50-percent straight-line accelerated capital cost allowance (CCA) rate for investment in manufacturing or processing machinery and equipment, which was extended in Budget 2009, to help position businesses in the manufacturing and processing sector for long-term success.
A temporary two-year 100-percent CCA rate for computers that allows businesses in all sectors to fully expense their investment in computers in the year they are acquired to boost Canada's productivity through the faster adoption of newer technology.
The elimination of the profit-insensitive federal capital tax in 2006 in order to improve the efficiency of the business tax system and help businesses to grow and prosper.

Provinces and territories have also taken action to enhance the competitiveness of Canadian businesses:

Ontario recently announced its decision to join a modernized Harmonized Sales Tax Framework and to reduce its corporate income tax rate from 14 percent in 2009 to 10 percent by 2013.
Other provinces, including British Columbia, New Brunswick and Manitoba, are also reducing their corporate income tax rates.
All general provincial capital taxes will be eliminated by 2012.

The combination of federal, provincial and territorial actions will help Canada achieve the goal of having the lowest overall tax rate on new business investment (marginal effective tax rate) in the G-7 by 2010. In addition, as a result of corporate income tax reductions introduced by the government, Canada will have the lowest statutory corporate income tax rate in the G-7 by 2012.

Enhancing the Scientific Research and Experimental Development Tax Incentive Program

Canada's Scientific Research and Experimental Development (SR&ED) tax incentive program is one of the most advantageous tax systems in the industrialized world for supporting business investment in R&D. In 2008, it provided about $4 billion in tax assistance to Canadian businesses. On the basis of consultations with stakeholders, the Government of Canada introduced in 2008 several changes to enhance the availability and accessibility of the financial support for R&D for Canadian small and medium-sized companies. It also allocated additional funding to improve the administration of the SR&ED program. Together, these changes will encourage Canadian technology-based firms to innovate, prosper and grow.

Improving Access to Investment Capital

Access to investment capital is the lifeblood of private sector R&D. Canadian firms seeking capital and Canadian investors looking for investment opportunities must be able to count on the quality of Canada's securities regulation system.

To look at how best to create a Canadian advantage in global capital markets through improved securities regulation, in February 2008 the Government of Canada appointed an Expert Panel on Securities Regulation. The panel released its report in January 2009, recommending, among other things, a shift towards a more proportionate and principles-based approach to securities regulation and the creation of a single securities regulator and securities act.

Budget 2009 committed the Government of Canada to working with willing partners towards establishing a Canadian securities regulator that respects constitutional jurisdictions and is part of a streamlined securities regulatory system that reinforces financial stability, strengthens enforcement and is more accountable to investors and Canadians.

To support the Canadian venture capital industry and to promote and sustain the growth of Canada's most promising innovative young firms, the Government of Canada is providing the Business Development Bank of Canada (BDC) with $350 million to expand its venture capital activities, including additional direct investments of $260 million in Canadian firms and indirect investments of $90 million in Canadian venture capital funds. In addition, Budget 2008 earmarked $75 million for BDC to create a new, privately run venture capital fund aimed at later-stage Canadian technology firms. These actions will help spur investment in innovative growing companies.

As part of the government's Extraordinary Financial Framework announced in Budget 2009, the Business Credit Availability Program (BCAP) has been launched. BCAP is an evolving suite of programs designed to improve access to financing for Canadian businesses through enhanced cooperation among private sector financial institutions and the government's financial Crown corporations, Export Development Canada and the Business Development Bank of Canada. It will deliver at least $5 billion in incremental financing to businesses, largely SMEs.

The Government of Canada's Labour Sponsored Venture Capital program is made up of funds that provide venture capital to innovative small companies. Individuals who invest in the funds receive income tax credits which totalled an estimated $150 million in 2008. These funds backed about 200 companies in 2008 according to Thomson Reuters.

Balancing Risk and Regulation: The Case of Nanotechnology

At the request of the Government of Canada, the Council of Canadian Academies assembled an Expert Panel on Nanotechnology to assess the state of knowledge for existing nanomaterial properties and their health and environmental risks, which could underpin regulatory perspectives on needs for research, risk assessment and surveillance.

Released in July 2008, the panel's report, Small is Different: A Science Perspective on the Regulatory Challenges of the Nanoscale, noted the limited state of available knowledge and identified a need to give priority to the development of a strategic research agenda to improve understanding of risks associated with specific classes of nanomaterials. While the panel felt that a new regulatory mechanism is not required for nanomaterials, it identified areas in which the regulatory framework could be strengthened and called for increased coordination between levels of government and international regulatory agencies.

The Council of Canadian Academies provides independent, expert scientific assessments on matters of significant public interest with the goal of informing public debate and decision making.

Strengthening Public–Private Research and Commercialization Partnerships

Public–private partnerships can be highly effective in catalyzing competitive advantage as researchers and entrepreneurs combine access to world-class knowledge networks with proven business expertise with the know-how to successfully match innovation with real opportunities in the marketplace.

Under the S&T Strategy, the Government of Canada made a series of commitments to strengthen public–private research and commercialization partnerships, with a focus on the four priority S&T areas: environmental science and technologies, natural resources and energy, health and related life sciences and technologies, and information and communications technologies.

Creating Advantage With Canada's Networks of Centres of Excellence

Partnerships of researchers and entrepreneurs are important because they bring research strengths to bear on market-driven challenges and opportunities.

With Budget 2007, the Government of Canada made substantial new investments in Canada's world-renowned Networks of Centres of Excellence (NCE) program. The NCEs have an extraordinary track record of harnessing the research strengths of academia, industry and government to make a difference on issues of social and economic importance.

Their across-the-board success in knowledge generation, technology transfer and leveraging private sector investment has made them a model of innovative public–private partnerships and commercialization practices to the world. In 2006–07, the NCE program accessed $59 million in partnership cash and in-kind investments, including $22 million in private sector contributions^{Footnote 1}.

The core NCE program consists of 15 networks working in four areas of strategic importance: advanced technologies (including information and communications technologies), engineering and manufacturing, the environment and natural resources, and health and life sciences. In addition, three new-initiative NCEs are bringing a multi-sectoral perspective to social issues such as bullying, care for the elderly and obesity. A competition is under way that will add new networks in the priority and sub-priority areas of the S&T Strategy.

Networks of Centres of Excellence Take on New Challenges

Canada's Networks of Centres of Excellence (NCE) program is internationally renowned for its ability to create Entrepreneurial, Knowledge and People Advantages.

In 2006–07, the NCE:

Partnered with close to 2000 companies, government departments and agencies, hospitals, universities and other organizations in Canada and around the world
Employed more than 6000 researchers and highly qualified personnel
Supported its scientists in filing 110 patents and publishing 4309 papers in refereed journals
Obtained or launched negotiations on 20 licences and generated four spinoff companies

The NCE program is an initiative of Industry Canada in partnership with the three federal granting agencies — the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council of Canada, and the Social Sciences and Humanities Research Council of Canada.

New Business-Led Networks of Centres of Excellence

R&D creates jobs, improves the quality of life of all Canadians, and builds a more diverse and resilient economy over the long term.

In 2007–08, the Government of Canada moved to build on the NCE program's solid foundation by investing $46 million over four years in new Business-Led NCEs. These new large-scale collaborative networks will help increase private sector investments in research in Canada, support the training of skilled researchers and accelerate the timeline involved in transferring ideas from the laboratory to products in the marketplace.

Selected through a rigorous competitive process, the Business-Led NCEs will focus on innovative tools for drug discovery, nanotechnology-enhanced forestry products, next-generation aviation technologies and sustainability challenges relating to hydrocarbon production.

New Centres of Excellence for Commercialization and Research

To bring together partners from the academic, private and public sectors to advance research and facilitate commercialization of technologies, products and services, the Government of Canada has also invested $350 million over five years to create new Centres of Excellence for Commercialization and Research.

This new initiative will create world-class centres to advance research and facilitate the commercialization of technologies, products and services in the four priority areas identified in the federal S&T Strategy.

To date, 17 successful initiatives have been launched. They were chosen by international peer review and informed by advice from the private sector. Each centre will bring together people, services and infrastructure to maximize the benefits of the government's investment in skills and research. They will also encourage private sector investment.

Making Ideas Make a Difference

The Bioindustrial Innovation Centre (BIC) in Sarnia, Ontario, is one of Canada's first Centres of Excellence for Commercialization and Research.

BIC's vision is for Canada to become a global leader in taking sustainable feedstock — such as farm and forestry by-products and wastes — and turn it into commercially viable renewable resources and value-added chemicals. These new products will be available for use in many applications, from the construction industry to auto parts production.

The College and Community Innovation Program

The Government of Canada is committed to helping strengthen the links between the colleges and the private sector.

Conceived as a pilot program in 2004, the College and Community Innovation (CCI) program was made permanent and provided $48 million through Budget 2007. The objective of the program is to increase innovation by enabling Canadian colleges to increase their capacity to work with local companies, especially small and medium-sized enterprises (SMEs). CCI supports applied research and collaborations that facilitate commercialization and technology transfer. The applied research projects will bring together expertise from diverse fields to address business-driven problems. Three separate competitions were launched in 2008. The first is completed, with eight colleges awarded a combined $18 million over five years, while the other two competitions are in progress. Over the long term, the CCI program will increase the economic development of the community and create new quality jobs based on know-how and technological innovation.

Increasing the Impact and Efficiency of Federal Research and Development Assistance

The Government of Canada delivers a range of programs that help to increase private sector innovation. These take a variety of approaches, from the work of the BDC to stimulate the supply of venture capital available to emerging technology companies to the hands-on approach of the National Research Council Canada's Industrial Research Assistance Program (NRC-IRAP). NRC-IRAP works closely with Canadian SMEs to develop, exploit and apply technologies to create new products, services and industrial processes.

While many of these programs are highly successful, the S&T Strategy identified the need to achieve greater cooperation among federal R&D assistance programs and between federal and provincial programs that support technological innovation and commercialization in the private sector. The Government of Canada has launched major new initiatives in this area and taken significant steps to improve the impact and effectiveness of individual programs.

Innovation That Crawls Before It Flies!

What is the Regina Pipe Crawler? With investment from Western Economic Diversification Canada and SpringBoard West Innovations (a not-for-profit organization), two University of Regina researchers have developed a robot that can crawl inside water pipes to search for weak spots before they become costly to repair or cause damage. When market-ready, the technology is expected to generate cost savings for homeowners and municipalities alike.

Western Economic Diversification Canada invests in innovative commercialization projects like SpringBoard West ($2.2 million) that support innovation in the S&T Strategy's four priority areas.

Facilitating Access to Federal Research and Development Assistance

To accelerate the commercialization of innovative products into the marketplace, the NRC, NSERC and BDC are working to better align their programs and activities.

The three federal agencies have launched several pilot programs in Montréal, Toronto, Winnipeg, Edmonton and Vancouver, and some of these pilots have been expanded to other geographic locations. Efforts to better serve clients include harmonizing due diligence processes and the co-location of both NRC-IRAP industrial technology advisors at five BDC regional offices and the co-location of NSERC staff at two NRC institutes. In April 2008, NRC and NSERC successfully launched a joint call for technology-driven research proposals in nanotechnology (energy, environment, and information and communications technology). These projects are now under way.

Budget 2009 also provided the NRC-IRAP with $200 million over two years to temporarily expand its initiatives for technology-based SMEs during the economic downturn. SMEs are important drivers of economic growth and job creation for Canadians.

Strategic Aerospace and Defence Initiative Invests in Canada's Future

In addition to improving alignment and partnerships in business R&D support, the Government of Canada is continuously improving the impact and effectiveness of individual programs, such as the new Strategic Aerospace and Defence Initiative (SADI), which replaced Technology Partnerships Canada in 2007–08^.

SADI helps to drive private sector innovation in Canada by providing repayable investments for industrial research and pre-competitive development in Canada's aerospace, defence, security and space industries. Canada's aerospace and defence industries are recognized around the world for producing leading-edge products and services.

In addition to creating an Entrepreneurial Advantage, these investments will expand Canada's Knowledge and People Advantages. SADI-backed investments are expected to foster collaborative partnerships with universities, colleges and research institutions; promote the training of young workers and entrepreneurs; and generate high-quality jobs in communities in all regions of the country. SADI provides up to $225 million per year in support of aerospace R&D.

Canadian Firm Gets Ready to Build Components for Next-Generation Aircraft

Héroux Devtek Inc. — a Quebec-based firm — is using a $27-million repayable contribution from the Strategic Aerospace and Defence Initiative to position itself to supply components to global manufacturers of next-generation aircraft. The funds are enabling the company to move ahead with R&D on new materials and manufacturing processes that will enhance the performance and reduce the environmental footprint of selected aircraft landing gear.

Positioning Canada's Automotive Industry for the Future

The automotive sector is Canada's largest manufacturing industry. It employs some 150 000 Canadians directly and several hundreds of thousands more indirectly. To advance automotive research, the Government of Canada has launched major initiatives including Automotive Partnership Canada (APC), a five-year (2009-2014), $145-million initiative to support significant, collaborative, industry-driven R&D that benefits the Canadian automotive industry.

The government has also created the $250-million Automotive Innovation Fund (AIF) in 2008–09. This initiative represents as another important step in the Government of Canada's efforts to increase the impact of its R&D assistance. Investments made through the AIF will lay the base for future competitiveness, opportunities and jobs in Canada's automotive sector.

Through the AIF, the Government of Canada will support large-scale R&D projects aimed at creating a more competitive Canadian automotive sector and helping Canada to achieve its environmental objectives. These projects will help Canadian automakers to upgrade their operations with state-of-the-art designs and production processes to build cars and trucks that are on the cutting edge of consumer demand.

An early investment under AIF is an $80-million repayable contribution that would support the Ford Motor Company of Canada's Renaissance Project, conditional upon successful completion of all federal requirements under the AIF's terms and conditions.

This venture features the establishment of a state-of-the-art, flexible engine assembly plant in Windsor, Ontario, and the creation of a new North American Centre for Diesel and Advanced Powertrain Research. The research centre will have the capabilities to perform advanced R&D on prototype powertrains, gasoline powertrain technologies, hybrid technologies and alternative fuel powertrains including diesel, biodiesel, ethanol blends and hydrogen. Total public–private investment in the Renaissance Project could reach $730 million by 2012.