5. Complementary Measures While this report emphasizes capital supply, complementary measures addressing other innovation finance dimensions remain important. Strategic public procurement plays a significant role in helping startups scale, commercialize innovation, and achieve market validation. Strategic enhancements to established programs, including the Scientific Research and Experimental Development (SR&ED) tax credit and the Strategic Innovation Fund (SIF), represent important complementary mechanisms. Aligning these initiatives more closely with Canada's innovation-driven sectors would amplify NITC effectiveness by improving the environment into which newly mobilized private capital flows. Existing and proposed mechanisms would be strengthened by addressing increased national coordination, information flow, and market discovery in regional innovation ecosystems.
5.1 Flow-Through Shares for Startups and Innovation Companies
In April 2025, the federal government announced its intention to expand the flow- through share (FTS) regime—previously available only to resource sectors—to innovative industries such as artificial intelligence, quantum computing, biotechnology, and advanced manufacturing. Under this proposal, eligible Canadian startups would be permitted to issue flow-through shares for qualifying research and development expenses, allowing them to transfer tax deductions to investors. Flow-through shares have a long track record of success in Canada’s mining and energy sectors, where they have helped companies raise billions in risk capital by making investments more attractive to investors through immediate tax benefits. Extending this regime to startups and innovation-intensive firms could help level the playing field for early-stage companies that are not yet profitable and cannot otherwise benefit from traditional tax incentives. As the government advances the design and implementation of this policy, it will be important to ensure that eligibility criteria, administrative processes, and sectoral definitions maximize the impact for both startups and investors. The expansion of the FTS regime should be coordinated with other measures—such as the proposed National Investment Tax Credit (NITC) and Strategic Capital Gains Deferral (SCGD)—to create a comprehensive and competitive innovation finance ecosystem.
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