Is the patent box (or innovation box) truly coming to Canada?

All indicators are saying yes!

• The timing is right, as Canada’s 2024 Fall Economic Statement (see: Chapter 2: Investing to Raise Wages) refers to the Government’s “intent to implement a patent box regime. The government is reviewing feedback from consultations held earlier this year and will announce details of the patent box regime in Budget 2025.”). Prime Minister Carney has also hinted to the adoption of a patent box in Canada (The Logic, April 19, 2025, and Parliamentary Budget Office (PBO) - Cost Estimate - 45th General Election) and is pro-IP (Future Economy).

• Canada has already held a series of consultations in 2023 and notably in 2024 on the implementation of a national patent box regime, which MVIP co-founder and FORPIQ President David Durand has advocated for at:

  • the Canadian House of Commons Standing Committee on Science and Research (SRSR Committee, evidence, 2023), which recommended that “the Government of Canada establish taxation measures, potentially including the creation of a patent box, to encourage the commercial development of intellectual property and the retention of intellectual property within Canada.” (Report No. 7, at recommendation #7); and

  • Finance Canada (see here and here, 2024).

• Other Canadian provinces have already implemented an innovation box regime (“patent box”), such as:

  • the Province of Québec, which adopted a patent box regime in 2016, known as the Incentive Deduction for the Commercialization of Innovations (IDCI, or DICI in French, see here and here); and

  • the Province of Saskatchewan (see here).

• Canada needs to encourage companies to develop and commercialize IP domestically, and then take it internationally so as to promote trade, economic security (forthcoming), and technological sovereignty.

  
  

Thinking inside the innovation box (aka the “patent box”)

An innovation box, or patent box, is a tax incentive program that offers a reduced corporate tax rate on income derived from patents. By implementing a patent box, governments aim to incentivize innovation and encourage companies to develop and commercialize intellectual property (IP) domestically. Several countries, such as the United Kingdom, the Netherlands, and Belgium, have successfully implemented patent boxes, demonstrating their effectiveness in fostering innovation. This article explores why Canada is well-positioned to adopt an innovation box, or a patent box, and the potential benefits it could offer.

Top 3 reasons why you should care about an innovation box (aka “patent box”)

1. Reduces your corporate tax rate with the proposed patent box regime in Canada and Revenu Québec’s IDCI, which could represent millions of dollars (of savings) depending on the amount of IP-related income.

2. Paves the way for access to grants and incentives that use similar criteria to patentability requirements (i.e., statutory subject matter versus Scientific Research & Experimental Development (SR&ED) eligibility requirements – technological advancement).

3. Creates an intellectual property (IP) culture so as to safeguard and monetize your knowledge and IP assets, thereby promoting economic growth and economic security.

In order to fully benefit from a patent box regime, or even IP-secured lending (or IP-backed financing), businesses must have intellectual property (IP) assets – and not just any IP, but qualifying IP. What does this mean exactly? And how is it captured?

Capturing knowledge assets and converting them into Qualifying Intellectual Property (QIP)

Capturing knowledge assets – ranging from research discoveries and proprietary algorithms to unique manufacturing processes and valuable datasets – is fundamental for any business. Without a systematic approach to identify and document this internal expertise (intellectual capital), it remains diffuse and vulnerable, easily lost through employee turnover or simply overlooked. However, not all IP is “Qualifying IP” for tax purposes.

What exactly is “qualifying IP”? And why the absolute need for IP?

The definition of “qualifying IP” for tax purposes varies from jurisdiction to jurisdiction, and has yet to be determined in Canada at the federal level. Nor has the Government of Canada, at present, provided insight as to the mathematical or financial model to be used. As submitted before the Standing Committee on Science and Research, “qualifying IP” in the context of an IP box should not be restricted to one form of IP, for example patents. It should be inclusive of other forms of IP (i.e., plant breeder rights, copyright, patents, trade secrets) considering Canada’s investment in AI, defence (dual use technologies), among other sectors (CleanTech, etc.).

A few key statistics:

1. Canada has a strong foundation for innovation. A growing number of companies are actively engaged in research and development (R&D) and filing patent applications. For the past five years, resident filings in Canada accounted for approximately 12% of all patent applications received by the Canadian Intellectual Property Office (IP Canada Report 2023, 2024). Approximately 30% of Canadian firms reported protecting their IP, recognizing its significance in today’s competitive landscape (CIPO, 2024). This focus on IP protection is further emphasized by the fact that companies with registered IP receive financing amounts 2.4 times higher than those without (CIPO, 2024). This is congruent with the Joint EPO EUIPO Report that shows that: “on average, startups that possess these two types of intellectual property (IP) rights during their initial seed or early growth stages are up to 10.2 times more likely to successfully secure funding.”

2. In Canada there is a ~50%+ patent grant rate. According to the Canadian Patent Research Database, 2001 to 2019, there is an approximate Canadian patent grant rate of over 50%, and about 4,250+ Canadian resident filings per annum (IP Canada Report 2023, 2024).

   
   

   

   Source: IP Canada Report 2024.

   Applying this approximate patent grant rate of 50% to the number of Canadian resident filings means that only 2,000+ Canadian patents come to issue per year, with the caveat that:

   1. it takes approximately 6.5+ years for a patent to get prosecuted and granted in Canada (from date of filing to issuance);

   2. expedited examination of the patent application has not been requested (based on the type of filing basis and industrial sector),

            which might skew the numbers in a given year.

3. Canada funds innovation: Mapping of Canada’s Innovation Budget. Here are a few striking numbers for consideration (from a Canadian perspective):

   1. GERD: Canada’s gross domestic expenditures on research and development (GERD) reached $51.7 billion in 2022, up 9.0% (+$4.2 billion) from the previous year (Statistics Canada, 2024, OECD – Gross domestic spending on R&D | OECD).

   2. BERD: See:

      1. Value of business expenditures in research and development by firms receiving WD program funding (in $) – Statistics Canada

      2. Business Enterprise R&D Spending – The Conference Board of Canada 

      3. Institut de la statistique du Québec (see here).

   3. University spend: Research and development (R&D) spending in the higher education sector reached $18.1 billion in 2022/2023, up $1.4 billion from the previous year, with notable increases seen in both fields of research (see: The Daily — Spending on research and development in the higher education sector, 2022/2023, and Conference Board of Canada).

   4. Amount of grants and incentives given in Canada pursuant to the Government of Canada’s Departmental reports, such as Innovation Science and Economic Development (ISED), amongst others (see Mapping of Canada’s Innovation Budget).

   
   

4. Canadian Patent Research Database (2001–2019, CPRD). The CPRD provides valuable insights into historical trends in patenting activity by Canadian-resident businesses (CPRD, 2023). Analysis of the CPRD reveals a modest rise in patent applications from 2001 to 2015, followed by a decline until 2016. However, from 2016 to 2019, there was a slow increase in patent applications, indicating a potential resurgence in innovative activity. Notably, the cumulative growth in the number of patent applications per year from 2001 to 2019 was 15.4%. This data underscores the importance of continued support for innovation and the implementation of an innovation box (aka “patent box”) in Canada to ensure prosperity and technological sovereignty, as businesses secure value and supply chains.

MVIP™ PMO is the bridge between the business and external consultants, working in the interests of the business to optimize programs and returns so as to synergize business development and maximize value™. What does this mean? Flywheel™ creation is key.

Learning from Quebec’s IDCI Program

Quebec, a province with an estimated 24% share of Canadian patents, already has a program in place that resembles a patent box. The IDCI provides a reduced corporate tax rate of approximately 2% on eligible income from qualifying intellectual property. The IDCI was designed based on the recommendations from the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 5, related to countering harmful tax practices. This alignment with international standards ensures that the program is effective and transparent.

To be eligible for the IDCI, a business must:

• have an establishment in Quebec

• own an IP asset resulting from R&D activities conducted in whole or in part in Quebec, such as: (a) software copyrights (created after March 10, 2020), (b) patents and certificates of supplementary protection (applied for after March 17, 2016), (c) plant breeders’ rights (requested after March 10, 2020);

• commercialize the IP asset from an establishment in Quebec.

The types of revenue eligible for the IDCI are from:

• a payment for the use of or the right to use the IP asset

• the sale, rental, or lease of a property incorporating the IP asset

• the provision of a service intrinsically linked to the IP asset

• an amount obtained as damages in the context of a remedy of a judicial nature relating to the IP asset.

Determining IP-related revenue can be challenging, especially if it is not reported on balance sheets and financial statements.

The deduction is calculated based on a complex formula set forth in section 737.18.43 and 44 of the Quebec Taxation Act, which includes the following elements:

• the qualifying profit from the commercialization of the IP asset, which represents an estimate of the added profit that is attributable to the IP asset;

• the importance of R&D activities in Quebec (over the current and previous six years); and

• a factor to achieve an effective tax rate as low as 2% on qualifying income.

Further fiscal notes are found in the Revenu Québec bulletins:

• Dépenses fiscales 2024 - Impôt sur le revenu - Déductions - Déduction incitative pour la commercialisation des innovations au Québec

• Bulletin d'information du 17 décembre 2021 - Modifications apportées à la déduction incitative pour la commercialisation des innovations au Québec et ajustements à d’autres mesures

The Key to Success: An MVIP™ Back Office

Converting these captured assets into IP, such as patents, trademarks, copyright, industrial designs, plant breeder’s rights, or trade secrets, transforms them from abstract knowledge into legally protected, defensible and valuable assets, especially in today’s threat environment. This formalization is not just about protection; it’s a prerequisite for strategically leveraging these innovations, particularly within frameworks like an innovation box, which provides significant tax advantages for income generated from qualifying IP, thereby maximizing the financial return on R&D investments and incentivizing further innovation.

The creation of an MVIP™ project management office (PMO), within the business, is essential, and allows you to:

• Set up processes to capture knowledge assets and determine which ones should be the object of an IP rights (or kept as a trade secret) and eventually be inserted inside an innovation box;

• Get expert support to secure IP assets;

• Create an IP culture;

• Manage and leverage your knowledge assets (and IP), thereby promoting economic growth and economic security.

Having an MVIP™ PMO is key in navigating the funding journey.

The key in taking full advantage of an intellectual property (IP) box resides in the ability of the business to:

1. Think IP and implement an IP culture, strategy, and roadmap within the business;

2. Identify the particular IP assets that qualify under the patent box regime, among other programs;

3. Demonstrate that the qualifying IP assets were developed in Canada and that substantial R&D activities were conducted in the territory (i.e., Canada or the province). For example, in the Province of Québec, businesses must “more precisely link the research and development (R&D) activities contributing to the development of an IP asset with the resulting income from that IP asset”; and

4. Identify the specific income derived from the qualifying IP asset for tax purposes. This may require particular attention as current accounting standards do not have particular requirements to report internally generated intangible assets on financial statements.

With its partners, MVIP™ is strategically positioned to assist you in the project management of each these steps so as to optimize the fiscal benefits you may be entitled to under the existing provincial innovation or patent box regimes. Consult our website for future updates on the federal patent box regime. Successful project management of an IP regime enables your business to benefit from: (a) a lower effective tax rate, (b) incentivizing R&D and innovation for risk-taking, (c) promoting economic activity and growth, and (d) other direct and indirect advantages.

 

Benefits of a patent box

A potential national patent box in Canada could offer several benefits:

•  Increased R&D investment: By reducing the tax burden on income from patents, companies would have more resources to invest in R&D, leading to the development of new technologies and products.

• Promoting domestic commercialization: By incentivizing companies to keep their IP in Canada, a patent box could help ensure that the benefits of innovation are realized domestically.

• Enhanced competitiveness: In a global economy where innovation is increasingly important, a patent box could help Canadian companies compete more effectively on the international stage.

• Attracting foreign investment: A patent box could make Canada a more attractive location for foreign companies to establish R&D centers and commercialize their IP, bringing in investment and creating jobs, provided that such foreign investment does not affect Canada’s economic security.

These benefits are further supported by the observation that government support programs and preferential tax treatment can encourage innovation and investment. A patent box aligns with this approach by providing a targeted tax incentive for IP-related activities. It would also perhaps be a good time to revisit the April 2025 decision of the Business Development Bank of Canada (BDC) to cut its intellectual property fund and slash its deep-tech team as recently reported by The Logic, especially considering the amount it has put into promoting this investment vehicle at the international level, including:

1. The Future Looks Brighter for IP-Backed Financing

2. WIPO Launch of the first Hands-on IP Finance Guide: Securing Loans with your IP Assets

3. Canada’s upcoming contribution to WIPO’s Country Perspectives series on Unlocking Intellectual Property-backed Financing (projected publication summer 2025)

These points must all be contextualized with the current geopolitical considerations.

Conclusion

Canada has a strong foundation for innovation, as evidenced by the growing number of companies engaged in R&D and patent filings.

To prevent abuse and ensure that the patent box genuinely promotes innovation, substance requirements may be necessary. These could include requirements for R&D activities to be conducted in Canada or for companies to have a significant presence in the country. Substance requirements help to ensure that the patent box benefits companies that are genuinely contributing to Canada’s innovation ecosystem and promote a form of technological sovereignty (Elbers, 2023).

Canada is well-positioned to implement a patent box at the national level. By carefully considering the design and implementation of such a program, Canada can further incentivize R&D and enhance its competitiveness in the global economy, thus promoting economic security. A patent box would not only benefit individual companies but would also contribute to the overall economic growth and prosperity of Canada.

Contact us for more information and subscribe to FORPIQ 2025: Strengthening Canada’s competitive advantage in a global economy.