Budget 2025 may not have introduced new insurance-specific measures for the sector, but its implications for the industry could prove significant. The federal government’s expansion of Canada’s Scientific Research and Experimental Development (SR&ED) program has opened a new channel of financial support for companies investing in automation, artificial intelligence, and digital transformation.
“While Budget 2025 didn’t deliver direct incentives for the insurance industry, it does offer meaningful opportunities for insurers focused on expense efficiency and innovation,” said Hiu Tung Cheung (pictured), partner and Canadian insurance tax sector leader at EY Canada. “The expansion of the SR&ED program – including a higher expenditure limit, restored capital expenditure eligibility, and broader access for public companies – creates a tangible path to tax savings for insurers investing in AI and digital transformation. In today’s economically uncertain environment, these measures support the kind of disciplined innovation that insurers are prioritizing to remain competitive,” she told Insurance Business.
The changes to SR&ED mark one of the most notable shifts to the federal R&D tax incentive framework in years. By reintroducing capital expenditure eligibility, the government is once again allowing businesses to claim tax credits on equipment and technology purchases directly related to innovation. For insurers – whose modernization efforts increasingly depend on advanced data systems, automation infrastructure, and AI models – the move could provide meaningful cost relief on projects that previously fell outside the program’s scope.
The higher expenditure limit and broader access for publicly listed companies also signal a more inclusive approach to innovation funding. For years, SR&ED’s structure primarily benefited small and medium-sized enterprises, leaving many large financial institutions with limited access to the enhanced credit rate. With these revisions, more insurers – including those with substantial R&D operations – are expected to qualify for expanded tax relief.
Cheung said the measures come at a critical time for insurers balancing tight expense targets with the need to modernize legacy systems. “The expansion of the SR&ED program... creates a tangible path to tax savings for insurers investing in AI and digital transformation,” she said. “In today’s economically uncertain environment, these measures support the kind of disciplined innovation that insurers are prioritizing to remain competitive.”
Finance Minister François-Philippe Champagne described Budget 2025 as a necessary response to growing global and domestic pressures. “There’s some headwinds on the horizon,” he told reporters in Ottawa. “That’s why we need a strong response.”
The federal plan outlines more than $280 billion in spending over the next fiscal year and projects a deficit of $78.3 billion – the second largest in Canadian history. Despite the steep cost, policymakers have defended the approach as a long-term investment in the country’s competitiveness. The government expects the package to help attract as much as $1 trillion in private investment to Canada over the next five years.
Funding is earmarked across several strategic areas: infrastructure, housing, and defence, as well as modernization of transportation, energy, and digital networks. The goal, according to federal officials, is to strengthen Canada’s position in global supply chains while improving productivity and domestic resilience.
The budget also underscores the government’s push to diversify trade relationships. With roughly 70% of Canadian exports still flowing to the United States, Ottawa is aiming to double trade with Europe and Asia over the next decade. To support that effort, Budget 2025 allocates new funding to help exporters develop markets, manage legal and regulatory costs, and strengthen global logistics.
A significant portion of the new spending focuses on accelerating the transition to clean energy and advanced manufacturing. The budget expands the list of critical minerals eligible for the Clean Technology Manufacturing investment tax credit – now including antimony, indium, gallium, germanium, and scandium. It also extends by five years the full-rate eligibility period for the Carbon Capture, Utilization, and Storage (CCUS) investment tax credit, allowing projects to claim the enhanced rate until 2035.
Manufacturers will also benefit from temporary immediate expensing for the cost of new or improved processing facilities. Qualifying buildings can be written off in full during the first year of use, provided that at least 90% of their floor space is dedicated to manufacturing or processing activity.
For insurers and other technology-driven sectors, one of the most impactful elements of Budget 2025 is the confirmed enhancement of the SR&ED program. The government formally adopted proposals first introduced in the 2024 Fall Economic Statement, including:
The Canada Revenue Agency (CRA) also plans targeted consultations to simplify and modernize SR&ED administration, including revisions to the claim form (T661). These adjustments aim to reduce compliance friction and encourage broader participation from industries modernizing through AI, automation, and data science.
Another technical but notable change involves tightening tax deferral mechanisms. Budget 2025 proposes to limit the deferral of refundable taxes on investment income achieved through tiered corporate structures with staggered fiscal year-ends. The measure would apply to taxation years beginning on or after November 4, 2025, reinforcing the government’s focus on closing perceived gaps in the corporate tax system while promoting fairness and transparency.
