Consultation on Creating a Patent Box Regime

Current status: Closed

The Department of Finance has concluded a consultation on the suitability of adopting a patent box regime to encourage the creation and retention of intellectual property (IP) stemming from research and development (R&D) conducted in Canada.

This engagement process gave all interested members of the public the opportunity to provide input on this topic. The consultation ran from January 31, 2024, to April 15, 2024. Thank you to everyone who participated.

Key questions for consideration

This consultation sought feedback on the suitability of adopting a patent box regime, and the appropriate design of such a regime if Canada were to adopt one.

The discussion questions that served as the basis for this consultation were the following:

• In contrast to its international peers, Canada has a net balance of payments deficit (receipts minus payments) on charges for the use of IP that has grown over the last two decades. In other words, businesses in Canada outlay more to entities in other countries for the use of IP than they receive from international sources for the same purpose. What sort of dynamics might be underlying this trend? What factors have contributed to Canada's negative balance?
• Would implementation of a patent box regime improve Canada's competitiveness as a location for developing, commercializing, and retaining ownership of IP? With respect to competitiveness as a location for developing IP, how would support through a patent box regime compare to support provided through the SR&ED program?
• How important are tax considerations in decisions regarding where to commercialize IP and where to locate IP? Which factors besides tax rates impact businesses' decisions around where to locate and commercialize IP derived from R&D conducted in Canada? How should the Department of Finance account for these factors in determining how businesses might alter their behaviour in response to implementation of a patent box regime?
• What would be a competitive combined federal-provincial/territorial tax rate under a Canadian patent box regime?
• The Action 5 Final Report identifies the IP assets that are in-scope of a nexus compliant approach. Should all these assets be eligible for a potential patent box regime in Canada? Are there differences in business practices with respect to different types of IP assets that should lead the Department of Finance to expect that commercialization and IP location decisions for each asset would respond differently to a patent box regime?
• If Canada were to implement a patent box regime, compliance with the nexus approach would require businesses to report detailed information around expenditures incurred in the development of eligible IP, similar to requirements in place under regimes in other jurisdictions that are compliant with the nexus approach. Drawing on experience with nexus-compliant regimes in other jurisdictions, please share any comments on challenges and best practices in this regard.
• Are there design features of a patent box regime that the Department of Finance should consider specifically to limit new fiscal costs to the government?

What's next?

Input received through this consultation will be considered, alongside the analysis departmental officials are conducting, as part of the ongoing work to determine whether and how Canada should adopt a patent box regime.

While this formal consultation has now concluded, Canadians are welcome to share their ideas and comments with the Department of Finance at any time.

Related links

• Consultation Paper: Creating a Patent Box Regime