Quarterly Financial Report Outlining Results, Risks and Significant Changes in Operations, Personnel and Programs — For the Quarter Ended December 31, 2025

1.1 Our organization

Innovation, Science and Economic Development Canada (ISED) works with Canadians in all areas of the economy and in all parts of the country to improve conditions for investment; enhance Canada’s innovation performance; increase Canada’s share of global trade; and build a fair, efficient and competitive marketplace.

ISED helps Canadian businesses grow, innovate and expand so that they can create good quality jobs and wealth for Canadians. It also supports science research and the integration of scientific considerations into investment and policy choices. The Department helps small businesses grow through trade and innovation and promotes increased tourism in Canada. The Department also works to position Canada as a global centre for innovation where investments support clean and inclusive growth, the middle class prospers through more job opportunities and companies become global leaders.

ISED’s efforts focus on improving conditions for investment, supporting science, helping small- and medium-sized businesses grow, building capacity for clean and sustainable technologies and processes, increasing Canada’s share of global trade, promoting tourism, and building an efficient and competitive marketplace.

A summary description of ISED’s core responsibilities can be found in the 2025–26 Departmental Plan.

1.2 Basis of presentation

The authority of Parliament is required before money can be spent by the government. Approvals are given in the form of annually approved limits through appropriation acts or through legislation for specific purposes. The accompanying Statement of Authorities includes the Department’s spending authorities granted by Parliament, and those used by the Department consistent with the Main Estimates and Supplementary Estimates (as applicable) for the 2025–26 fiscal year. This report has been prepared using a special‑purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

As part of the departmental performance reporting process, ISED prepares its annual departmental financial statements on a full-accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian Generally Accepted Accounting Principles for the public sector. The spending authorities are voted by Parliament on an expenditure basis. Therefore, management has prepared this report using an expenditure basis of accounting.

This report has not been subject to an external audit or review. However, it has been reviewed by ISED’s Departmental Audit Committee (DAC) in accordance with Treasury Board guidance. No material misstatements or omissions have been identified.

1.3. General descriptions

The following descriptions are referred to throughout the report:

• Authority: Approvals from Parliament to spend up to a specific amount.
• Operating (Vote 1): Amount approved for the fiscal year for the Department to spend on salary and operating expenditures.
• Capital (Vote 5): Amount approved for the fiscal year for the Department to spend on capital purchases or for the construction of assets.
• Grants and Contributions (Vote 10 and Statutory):
  • Vote 10: Amount approved for the fiscal year for the Department to provide Grants and Contributions (G&C) funding to prospective recipients.
  • Statutory: Amount approved through an existing Act of Parliament where additional annual approvals are not required by the Department to access G&C funding for recipients.
• Operating and Capital Carry Forward: Eligible funds lapsed in the previous fiscal year brought forward to the following year.
• Employee Benefit Plan (EBP): The Department’s contribution to public service employee benefit plans.
• Vote Netted Revenue (VNR): Authority to apply revenues earned by the organization to cover costs incurred for specific activities by that organization.
• Standard Object (SO): Classification or coding of transactions to permit the reporting of information about the nature of transactions in the Estimates and Public Accounts (i.e., personnel, professional and special services, and transfer payments).

2.1 Authorities available for use for the fiscal year and planned expenditures

ISED’s current total authorities available for use of $8.7 billion in 2025–26 is $2.3 billion higher than the same period in 2024–25. This is illustrated in Graph 1 below, in the Statement of Authorities and in the Departmental Budgetary Expenditures by Standard Object.

Graph 1: Comparison of total net budgetary authorities available for use as at December 31, 2025, and December 31, 2024

The overall increase in total net budgetary authorities available for use includes:

• Grants and Contributions (Vote 10 and Statutory): $2,273.3 million increase
• Net Operating Expenditures (Vote 1): $34.1 million increase
• Capital Expenditures (Vote 5): $16.1 million increase
• Other: $5.9 million decrease
  • Employee Benefit Plan (EBP): $9.2 million increase
  • Canadian Intellectual Property Office Revolving Fund: $15.3 million decrease
  • Other: $0.2 million increase

Variances for each type of appropriation are explained in detail in the tables below.

2.2 Authorities used to date and actual expenditures

Authorities used and actual expenditures for the third quarter of 2025–26 decreased by $222.2 million when compared with the third quarter of 2024–25, while the year-to-date authorities used and actual expenditures also decreased by a similar margin ($303.2 million) when compared to the same period last year (see Graph 2 below, the Statement of Authorities, and the Departmental Budgetary Expenditures by Standard Object). The differences occurred primarily in Grants and Contributions payments and are largely attributable to recipients’ cash flow requirements, timing variances, and sunsetting programs, as described in the tables below. Additionally, spending increased for professional services under the Defence Industrial Initiative.

Graph 2: Comparison of net third quarter authorities used and expended as of December 31, 2025, and December 31, 2024

By category, the authorities used and expended in the third quarter compared with the same time last year have changed as follows:

• Grants and Contributions (Vote 10 and Statutory)
  • Q3 – $244.1 million decrease
  • YTD – $306 million decrease
• Net Operating Expenditures (Vote 1)
  • Q3 – $20.6 million increase
  • YTD – $ 7.7 million increase
• Other
  • CIPO Revolving Fund
    • Q3 – $0.6 million decrease
    • YTD – $9.5 million decrease
  • Other minor items, including capital expenditures (Vote 5) and EBP
    • Q3 – $1.8 million increase
    • YTD - $4.6 million increase

Section 2.2.1 provides a detailed breakdown of the changes in authorities used for the third quarter.

2.2.1 Highlights of changes in authorities used for the third quarter

The following tables highlight, by authority, the larger changes in authorities used, as reported in the Statement of Authorities.

Grants and Contributions Authorities Used (Vote 10 and Statutory)

	Increase/ (Decrease) in millions of dollars
	Q3	YTD
New/additional program spending:
AI Compute Infrastructure Program	26.9	79.3
Canadian Quantum Champions Program	41.4	41.4
Variance due to timing of payments and/or cash flow requirements:
Strategic Science Fund	6.3	38.3
Global Innovation Clusters	27.1	23.8
Universal Broadband Fund	27.1	21.7
Pan-Canadian Artificial Intelligence Strategy	14.3	17.7
Can Code Program	7.2	15.9
Canada Small Business Financing Program	2.6	12.1
Genome Canada	-	11.5
Cyber Security Innovation Network	5.6	11.3
Upskilling for Industry Initiative	15.3	11.2
Canada Foundation for Innovation	negative (182.8)	10.2
Mitacs	63.5	negative (5.6)
Digital Research Infrastructure Strategy	negative (8.0)	negative (58.1)
Strategic Innovation Fund	negative (215.9)	negative (245.5)
Programs for which funding has ended in 2024–25
Stem Cell Network	-	negative (15.0)
AdMare BioInnovations	-	negative (27.0)
Canada Foundation for Sustainable Development Technology	negative (32.4)	negative (44.3)
Canada Digital Adoption Program	negative (35.2)	negative (189.8)
	negative (7.1)	negative (15.1)
Total Change in Grants and Contributions Authorities Used (Vote 10 and Statutory)	negative (244.1)	negative (306.0)

Net Operating Authorities Used (Vote 1)

	Increase/ (Decrease) in millions of dollars
	Q3	YTD
Net Operating Expenditures – Increases in Q3 are primarily attributable to increases in spending for the Defence Industrial Initiative. Year-to-date increases reflect increases in personnel offset by the effect of timing differences for recording revenues netted against expenditures.	20.6	7.7
Total Change in Net Operating Expenditures Authorities Used (Vote 1)	20.6	7.7

Other Authorities Used

	Increase/ (Decrease) in millions of dollars
	Q3	YTD
Revolving Fund Net expenditures - The Q3 and YTD decreases in authorities used are from increases in patent and trademark registration volume. This was offset by increased overall salary expenses and retroactive pay under certain collective agreements.	negative (0.6)	negative (9.5)
Other minor items, net	1.8	4.6
Total Change in Other Authorities Used	1.2	negative (4.9)

2.2.2 Highlights of changes in actual expenditures (2025–26 compared with 2024–25)

Variances in actual expenditures by standard object (Departmental Budgetary Expenditures by Standard Object) are primarily due to the following:

Spending Category	Explanation of significant changes (2025–26 compared to 2024–25)	Increase/ (Decrease) in millions of dollars
		Q3	YTD
Standard Object:
Personnel	Q3 and YTD salary expenses increases are mostly attributed to new program spending and CIPO activities. This includes increases to employee benefit costs as well as certain collective agreement increases.	3.5	20.3
Professional and Special Services	Q3 increases in professional services are attributable to spending for the Defence Industrial Strategy, offset by reductions from the Refocusing Government Spending Initiative.	11.3	5.8
Transfer Payments	Significant changes have been explained in Section 2.2.1.	negative (244.3)	negative (306.2)
Other minor items, net		negative (2.4)	negative (11.8)
Less revenues netted against expenditures:
Revolving Fund Revenues	The increases are primarily attributable to higher revenues from patent maintenance fees and trademark application filings, largely driven by increased volumes and the 4.4% CPI adjustment implemented in January 2025	4.3	15.7
Sales of services	The quarterly variance is mostly attributable to the timing of receipts related to bankruptcy levies as well as services provided to Other Government departments (OGD).	negative (14.0)	negative (4.4)
Total Change in Budgetary expenditures		negative (222.2)	negative (303.2)

3. Significant changes in relation to operations, personnel and programs

On December 19, Associate Deputy Minister Francis Bilodeau was appointed as Deputy Minister of Canadian Heritage, to take effect in early 2026.

4. Financial risks and uncertainties

As of Q3 2025–26, ISED continues to advance priorities that support productivity and long-term competitiveness, including clean growth, critical minerals and responsible AI. Despite easing borrowing costs, uncertainty remains elevated due to geopolitical developments and trade-policy shifts, including evolving tariff measures that are influencing North American supply chains, investment decisions and partner capacity. These conditions can affect delivery timelines and the pace of uptake for programs with significant Grants and Contributions commitments.

ISED has continued to advance domestic manufacturing and clean-growth investments, including EV-battery and critical-minerals supply chains, while monitoring execution risks associated with large-scale projects. In the context of Canada’s 2025 G7 Presidency, the Government has advanced international collaboration on critical minerals and is pursuing measures to accelerate priority projects and partnerships, which can strengthen supply-chain resilience but can also increase the pace of project development and associated delivery, due diligence and cash-flow management requirements.

The Government’s Canadian Critical Minerals Strategy (including its 2024 Annual Report) continues to highlight the importance of, and remaining gaps in, refining and processing capacity to fully capture value from upstream extraction and to supply planned battery manufacturing capacity. As projects move from announcement to construction and operation, program flexibilities, partnerships and active project monitoring remain important to mitigate schedule, cost and market risks.

Building on Budget 2024’s $2 billion Canadian Sovereign AI Compute Strategy, ISED has continued to roll out initiatives to expand domestic AI compute capacity and access, including opening applications for the AI Compute Access Fund to help small and medium-sized enterprises access affordable compute power. In parallel, the Government launched an AI Strategy Task Force and a public engagement process in Fall 2025 to inform the next chapter of Canada’s AI strategy. The scale and timing of third-party infrastructure, procurement and partnership arrangements present delivery and sequencing risks that ISED is managing through due diligence, milestone-based agreements and departmental oversight mechanisms.

Following the launch of the Comprehensive Expenditure Review (CER) in early July 2025, Budget 2025 set out planned savings and reductions under the CER beginning in 2026–27. ISED is integrating these assumptions into scenario analysis and monthly financial monitoring, and will adjust resource plans as implementation details and Government decisions are confirmed.

To further address financial risks, ISED has continued to strengthen its risk management framework by:

• Standardizing risk management practices for grants and contributions (G&Cs) to promote consistent risk assessments and decision-making across programs;
• Advancing financial management modernization to improve the timeliness and integration of financial and non-financial data to support decision-making; and
• Reinforcing CFO model accountabilities by clarifying roles and oversight for resource management.

Through the remainder of 2025–26, evolving global conditions (trade frictions, supply-chain adjustments and technology-market shifts) may influence partner delivery schedules and cost profiles. ISED will continue to align investments with Government-wide priorities while using internal financial status reporting, scenario planning, active project monitoring and targeted reallocations to protect core program outcomes and manage emerging pressures.