Budget 2026 & IP: SR&ED Expansion, Patent Act Changes, and More

Budget 2026 was released by the federal government of Canada on November 5^th. In alignment with the Carney government’s prioritization of Canadian innovation and global competitiveness, the budget includes several proposals related to the protection and commercialization of intellectual property (IP).  

Of particular interest is the expansion of the Scientific Research and Experimental Development (SR&ED) tax incentive to cover the costs of registering and maintaining IP that comes out of eligible projects. Beyond the SR&ED expansion, the budget also contains measures related to Canada’s IP ecosystem, the Patent Act, and how the previously announced Productivity Mega Deduction can be used to strengthen IP protections. 

In reaction to Budget 2026, IAC CEO Mike McLean said, “the budget reinforces the government’s focus on economic sovereignty and retaining more of the value created by Canadian innovation. Significant investments in defence, critical minerals, clean technologies, and other strategic sectors create opportunities, but also highlight the importance of ensuring Canadian companies have the IP positions and freedom to operate necessary to compete.” 

What the SR&ED expansion means for Canadian companies 

For business leaders who are making investments in IP, the proposal in Budget 2026 that should jump out is the expansion of SR&ED tax incentives to include IP protection costs. 

SR&ED enables science and technology companies to receive income tax credits for a percentage of the money they spend on research and development (R&D). Following changes proposed in the 2024 Fall Economic Statement, Budget 2025 expanded the program with higher credit limits, more eligible companies, and a streamlined approval process. Budget 2026 keeps the rates and limits from 2025, but adds two new categories of eligible spending: regulatory and certification costs and IP protection costs. These categories extend SR&ED support from the R&D phase through to commercialization, making it easier for Canadian companies to protect their innovations as they go to market. 

Businesses that qualify for the enhanced rate can receive a 35% tax credit on eligible spending. The general rate is 15%. The proposal would make eligible expenses including the cost of filing and maintaining patents and other forms of IP protection. Fees paid to IP offices outside of Canada are covered, but supporting activities are only eligible if they are performed in Canada. However, the budget is clear that litigation costs related to IP enforcement are not eligible.  

Sector-specific guidance from CRA is still to come that will help clarify exactly what is covered. Like everything in Budget 2026, the proposal still needs to be enacted before businesses can take advantage of the changes. If enacted, the proposal would apply to tax years that begin on or after budget day—November 5^th, 2026. 

What else does Budget 2026 say about intellectual property? 

The new budget includes two more important measures related to IP, but both were previously announced in some form.  

Budget 2025 proposed a performance review of Canada’s IP ecosystem, but no action has yet been taken. Budget 2026 describes the first set of actions for the review, including: 

• Modernizing policies at NSERC, SSHRC, and CIHR 

• Expanding the impact of the NRC and its IP assets 

• Consulting with experts to strengthen Canada’s capacity to bring University research to market  

• Amending the Patent Act to make ownership clearer and due diligence easier 

• Reducing the burden of bad-faith patent infringement claims by establishing minimum requirements for patent demand letters. 

It is worth noting that the rules around demand letters have been allowed for in the Patent Act since 2018, but the budget commits to writing new regulations to enact them. Further measures related to the IP ecosystem review are set to be announced in the spring of 2027. 

The other not-entirely-new measure that impacts IP strategy is the Productivity Mega Deduction. Introduced in September at the Canada Investment Summit, the Mega Deduction expands on 2025’s Super-Deduction to allow businesses to immediately deduct 100% of the cost of eligible new investments across a huge number of new asset types. Patents are one of the asset types that Budget 2026 makes permanently eligible for immediate expensing, making this measure another significant benefit for Canadian businesses that are investing in IP. 

The opportunity for Canadian SMEs 

Budget 2026 presents great opportunities for Canadian small and medium enterprises (SMEs) to invest in protecting and commercializing their innovations. At IAC, we help Canadian cleantech startups and scaleups develop IP strategies that get them ready to take advantage of these types of opportunities. We hope this budget represents just one significant step in the long and exciting process of empowering Canada’s innovation ecosystem. 

“While the budget is encouraging progress, companies need support to create more strategic approaches to IP ownership and deployment,” said Mike McLean. “IAC’s work helping Canadian companies use IP as a competitive business asset—rather than simply a legal right—is increasingly aligned with the country’s economic priorities. We are encouraged by this direction and energized about the role we can play in advancing it.”