Canada's ITB Policy Reform: What SMBs Need to Know in 2025

After years of criticism and a damning auditor general's report, Canada's Industrial and Technological Benefits (ITB) policy is finally getting the overhaul it desperately needs. With over $15 billion in unallocated ITB obligations and growing concerns about the policy's impact on small and medium-sized businesses, Prime Minister Mark Carney has promised comprehensive reforms by November 2025.

The Current State of ITB: A System Under Strain

The ITB policy, which requires defence contractors to invest in Canadian businesses equal to the value of contracts over $100 million, has become increasingly complex and burdensome. A late 2024 auditor general report found that the government's management of the policy was "poorly run" with "unreliable records" and a lack of clear guidance.

For Canadian SMBs, the challenges are particularly acute. While the policy was designed to create opportunities for Canadian businesses, many small companies find themselves serving as "Eligible Donors" without receiving proportional benefits, facing asymmetrical barriers as Prime Contractors, and struggling to overcome what industry insiders call the "Causality Hurdle"—proving that their work directly resulted from ITB obligations.

What's Changing: Key Reform Proposals

Industry Minister Mélanie Joly unveiled a new three-pillar industrial strategy in October 2025, aimed at protecting Canadian industries, creating jobs, and attracting global investment. While experts note the strategy "falls short on ambition," it does include several important reforms:

1. Venture Capital Fund (VCF) Mechanism Reform

The VCF mechanism within the ITB program is being overhauled to make it more competitive and attractive for contractors. Currently underused due to restrictive limits and weak incentives, the reformed VCF will allow contractors to invest in Canadian venture capital funds more easily, potentially unlocking billions in innovation funding.

2. New "Buy Canadian" Policy

By November 2025, Canada will introduce a comprehensive "Buy Canadian" policy as part of its overarching industrial strategy. This policy will prioritize Canadian suppliers in government procurement, particularly for defence and critical infrastructure projects.

3. Improved Tracking and Transparency

In response to the auditor general's findings, Innovation, Science and Economic Development Canada (ISED) is implementing new systems to track ITB obligations more reliably. This includes clearer definitions for "Obligation," "Completed to date," "In progress," and "To be identified" categories.

4. SMB-Focused Support Programs

Recognizing the unique challenges faced by small businesses, the government is developing targeted support programs to help SMBs navigate ITB requirements, connect with prime contractors, and demonstrate causality for their work.

The $15 Billion Opportunity

Perhaps the most significant aspect of the ITB reform is addressing the massive backlog of unallocated obligations. As of January 2024, over $15.3 billion in ITB obligations were "looking for uses"—representing an enormous opportunity for Canadian businesses that can position themselves effectively.

This "hidden war chest," as some industry observers call it, could transform the Canadian defence and technology sectors if properly deployed. The reforms aim to make it easier for contractors to fulfill these obligations while ensuring Canadian businesses—particularly SMBs—receive meaningful benefits.

What This Means for Your Business

If you're a Canadian SMB in the defence, aerospace, technology, or advanced manufacturing sectors, these reforms present both opportunities and challenges:

The Road Ahead

While the reforms are welcome, experts caution that implementation will be key. "Canada uniquely among Five Eyes countries lacks a comprehensive defence industrial strategy," notes one industry analyst. The ITB reforms are a step in the right direction, but they must be part of a broader vision for Canadian defence and technology sectors.

For SMBs willing to navigate the evolving landscape, the opportunities are substantial. The combination of $15 billion in unallocated obligations, improved tracking systems, and targeted support programs could create unprecedented access to defence contracts for qualified Canadian businesses.

How Goverly and ITB Academy Can Help

Navigating the reformed ITB landscape requires both knowledge and tools. ITB Academy provides comprehensive training on the ITB policy, including the latest reforms and how to position your business for success. Meanwhile, Goverly's AI-powered platform helps you identify relevant opportunities, track ITB obligations, and connect with prime contractors seeking Canadian partners.

Together, these platforms provide the education and intelligence you need to capitalize on Canada's $15 billion ITB opportunity.