Prime Minister Mark Carney’s minority Liberal government survived by a hair on Monday, eking out a 170–168 budget win that dodged a snap election just weeks before the holidays.
It was the Liberals’ third confidence test in as many weeks – a stark reminder that Carney is still governing from the edge, two seats short of a majority and one vote away from collapse.
Budget 2025 may not have introduced new insurance-specific measures, but its implications for the sector could be far-reaching. The federal government’s expansion of the Scientific Research and Experimental Development (SR&ED) program stands out as one of the most consequential shifts for insurers, opening new avenues for tax relief on AI, automation, and digital modernization projects.
The changes to SR&ED mark one of the most significant updates to Canada’s research tax credit system in years – and insurers stand to benefit in ways they haven’t before.
“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, 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,” she previously told Insurance Business Canada.
For years, SR&ED excluded capital equipment, preventing insurers from claiming credits on the hardware and technology that power data modernization, automation, and AI adoption. That exclusion often limited the program’s usefulness to financial institutions with large-scale digital transformation projects.
Budget 2025 reverses that.
Reintroducing capital expenditure eligibility means insurers can now claim tax credits for the physical infrastructure underpinning modernization – from advanced data storage systems and AI processing hardware to automation tools and specialized analytics equipment.
For an industry where digital transformation hinges on both software and the systems that support it, this reinstatement brings once-ineligible projects back into the fold.
SR&ED has historically favoured smaller firms, thanks to its enhanced credit rate for Canadian-controlled private corporations (CCPCs). Publicly traded insurers – even those with major R&D investments – often found themselves excluded from meaningful credits.
Budget 2025 softens those boundaries. Raising the expenditure limit and expanding access for public companies signals a shift toward more inclusive innovation funding. For insurers with sizeable data science, actuarial, and automation teams, the change could translate into millions in future tax savings.
Insurers are under pressure to modernize while keeping a lid on expenses – a balancing act intensified by rising claims costs, volatile cat activity, and ongoing competition for tech talent.
“In today’s economically uncertain environment, these measures support the kind of disciplined innovation that insurers are prioritizing to remain competitive,” Cheung said.
The budget’s proposed federal ban on non-compete clauses is another shift insurers will need to watch, though experts expect its impact to be tempered.
Non-competes have long struggled in Canadian courts, and a national prohibition largely formalizes what judges have already been signalling: companies should rely on narrow non-solicitation and confidentiality clauses, not broad restrictions on where employees can work.
“Non-competes aren’t to be confused with non-solicitation clauses,” said Duncan Meadows, partner at EY Canada. Non-solicits – which prevent departing employees from approaching clients or co-workers – remain enforceable and will continue to serve as the industry’s primary guardrail.
Tracy Kay, partner at EY Law, noted that many employers included non-competes for “moral persuasion value,” even when they were effectively unenforceable. A federal ban should bring greater clarity for employees and require employers to sharpen their contracts rather than rely on broad prohibitions.
Movement is expected to increase modestly, most notably in distribution and among high-demand technical roles where skills in analytics, AI, and digital transformation command a premium.
Geography, limited availability of niche roles, and the relationship-driven nature of insurance will continue to moderate how far – and how fast – talent moves.
The shift may prompt insurers and brokerages to place more emphasis on culture, career development, and competitive compensation rather than legal barriers, but experts agree the overall impact will be evolutionary rather than disruptive.
With the motion passed, Finance Minister François-Philippe Champagne can now move ahead with introducing the budget implementation bill. It’s the step that determines which measures, including the SR&ED expansion and employment-law changes, ultimately take effect.
Speaking on Parliament Hill Monday, Carney said Canadians want to see continued investment in the country and argued the budget reflects that priority. The government has framed this year’s plan as a set of “generational investments,” choosing to maintain spending on social programs and economic growth initiatives rather than aggressively cutting the deficit.
Those choices come with fiscal consequences. Ottawa now projects a $78.3-billion deficit for 2025–26 – significantly higher than the outlook in last year’s fiscal update – alongside $32.5 billion in new capital spending over five years. The government anticipates returning to a modest operating surplus by 2028–29, backed by a mix of new spending and over $51 billion in proposed savings.
For insurers, the next milestone will be the budget bill itself. The details – including the timing and scope of SR&ED changes and the structure of the non-compete restrictions – will determine how quickly the industry can begin planning around the new rules.
