Canadian businesses want AI regulation, incentives and infrastructure

With a budget looming, a majority of Canadian business leaders want the federal government to regulate AI quickly and incentives to keep Canadian research, talent and data on home soil, new KPMG in Canada research reveals.

In a recent survey of 750 business leaders, more than nine in 10 (92 per cent) said the federal government should regulate AI as soon as possible. The same proportion (92 per cent) said Canada’s approach to regulating AI should be agile, flexible and relatively light in touch because the technology advances too quickly. Nearly all (94 per cent) respondents agreed Canada’s AI policy must include a reasonable, uncomplicated, and enforceable set of regulations aligned with broader global standards to allow for accelerated adoption.

“Canadian business leaders expect the federal government to take a nuanced, balanced approach to regulation – but to also move quickly. Canada will have to make difficult decisions that balance the interests of protection from AI risks, reducing complexity of regulation, and incentivizing development in Canada,” says Jillian Frank, Partner and National Leader of Legal Transformation, Technology and Managed Services at KPMG in Canada.

Ms. Frank says that striking a balanced approach to regulation in a quick timeframe is possible if the government acts quickly, but “Canadian companies may need to give the government space to take an agile approach – for example, start with lighter regulation based on existing privacy, human rights, IP and consumer protection standards, and adjust later to ensure appropriate enforcement and learn from the experiences of other jurisdictions like the EU.”

Previous research by KPMG International shows three quarters of Canadians also want AI regulation, five percentage points higher than the global average. 

Survey highlights

• 92 per cent want the federal government to establish a federal regulatory framework for AI as soon as possible (44 per cent agree strongly/48 per cent agree somewhat)
• 92 per cent said Canada’s approach to regulating AI should be agile, flexible and relatively light in touch, because the technology advances too quickly (44 per cent agree strongly/48 per cent agree somewhat)
• 94 per cent believe Canadian AI policy must include a reasonable, uncomplicated, and enforceable set of regulations aligned with broader global standards to allow for accelerated adoption (44 per cent agree strongly/50 per cent agree somewhat)
• 88 per cent want the federal government to establish cross-jurisdictional AI sandboxes – i.e. joint testing environments with allies such as the UK and EU – allowing for iterative experimentation (37 per cent agree strongly/51 per cent agree strongly)
• 91 per cent said Canadian governments should incentivize Canadian businesses to adopt AI by streamlining regulations and cutting red tape (42 per cent agree strongly/49 per cent agree somewhat)
• 88 per cent believe Canada’s new minister of AI will help Canada advance its position in AI and make the country more competitive (42 per cent agree strongly/46 per cent agree somewhat)

Regulating AI

Currently, Canada does not have a federal regulation for AI, but the new federal government has in recent months has signalled an interest in accelerating AI regulation after the appointment of a first-ever Minister of Artificial Intelligence and Digital Innovation - one of the few countries in the world to establish such a position. More than eight in 10 (88 per cent) respondents believe the new minister of AI will help Canada advance its position in AI and make the country more competitive.

“Establishing laws and regulations that can keep pace with and adapt to AI’s rapid advancements will give organizations the confidence to be more innovative in their approach to AI. Regulatory clarity around the use of AI will empower Canadian businesses accelerate their AI adoption and enable them to implement the technology at scale,” Ms. Frank says.

She notes that nine in ten business leaders think Canadian governments should incentivize Canadian businesses to adopt AI by streamlining regulations and cutting red tape. “With a lower regulatory and administrative burden, organizations will be able to implement AI more quickly and efficiently and increase their productivity and growth – which Canada’s economy needs urgently.”

Tax incentives

The government has announced other measures to support broader AI adoption, including a 20-percent tax credit for small- and medium-sized businesses to implement AI, which 87 per cent of respondents said is much needed and long overdue.

“Giving small and medium-sized businesses tax credits to adopt AI is a great start, and leaders tell us this kind of support is long overdue. But our research is clear — almost nine in 10 organizations want more help, whether that’s low-interest loans, grants, or R&D funding, to really unlock AI’s potential for growth and innovation,” says Davin Gnanapragasam, Partner and National Leader for Ignition Tax and Chief Technology Officer for Tax & Legal at KPMG in Canada.

More than nine in 10 (91 per cent) agree the Canadian government must provide more and better incentives for knowledge workers to develop intellectual property and remain in Canada, while nine in 10 want incentives for hyperscalers to participate in sovereign data initiatives so data can stay within Canada.

“Canada was a pioneer in AI, with some of the best talent and research in the world. But over time, we’ve seen our edge slip as other countries have invested more and pulled our people and ideas away. Canadians are telling us they want stronger incentives to keep our talent and IP here at home — and that’s going to be critical if we want to grow and compete in a global AI economy,” he adds

Other key highlights

• 87 per cent believe the federal government’s proposed 20 per cent tax credit for small- and medium-sized businesses to adopt AI is much needed and long overdue (37 per cent agree strongly/50 per cent agree somewhat) 
• 89 per cent said tax credits to incentivize credit for small- and medium-sized businesses to adopt AI is a good start, but more financial incentives are needed to boost adoption, such as low-interest loans, R&D grants and funding (40 per cent agree strongly/49 per cent agree somewhat) 
• 91 per cent believe the Canadian government must provide more and/or better incentives for knowledge workers to develop intellectual property and remain in Canada (44 per cent agree strongly/47 per cent agree somewhat) 
• 90 per cent want Canadian policymakers to establish and provide incentives for private industries like hyperscalers to participate in sovereign data initiatives so data can stay within Canada (41 per cent agree strongly/49 per cent agree somewhat)

AI Infrastructure

With nation building a major priority in the government’s agenda, infrastructure projects will remain a key focus for business leaders and investors over the next few months and years. More than nine in 10 (92 per cent) respondents want the government to focus on building more AI compute, which includes digital infrastructure such as data centres, cloud computing capacity and procuring cutting-edge chips.

The government has pledged $2.5 billion over the next two fiscal years for digital infrastructure such as data centres and broadband networks, and while respondents were supportive of the investment, a majority (88 per cent) said the amount falls short.

The federal government recently asked its new Major Projects Office to develop a Canadian sovereign cloud to build data centres and compute capacity to give Canada independent control over its own computing power.

“Canadian data is often processed in servers located or controlled outside our borders, which exposes organizations to potential risks in the event of geopolitical conflict or foreign legal claims. Building a sovereign cloud on home soil strengthens Canada’s digital sovereignty and control. True resilience, however, requires more than geography—it demands governance, transparency, and trusted partnerships with global cloud providers,” says Gary Filan, Partner, Canadian AI Lead at KPMG in Canada.

“Strong encryption and key management can mitigate cross-border risks, but organizations must also weigh trade-offs around cost, performance, and acceptable levels of residual risk. Nine in 10 business leaders have told us they want Canadian policymakers to provide incentives for private industries, including hyperscalers, to invest in sovereign data initiatives — ensuring that sensitive data can remain in Canada wherever possible, while still recognizing the role of encryption and risk management in a balanced approach,” he adds.

Other survey highlights

• 88 per cent support the Canadian government’s $2.5 billion pledge over the next two fiscal years for digital infrastructure like data centres and broadband networks, but characterize that amount as insufficient (37 per cent agree strongly/51 per cent agree somewhat)
• 92 per cent said Canada’s government should focus on building more Canadian AI compute – digital infrastructure such as data centres, more cloud computing capacity and procuring cutting-edge chips (42 per cent agree strongly/50 per cent agree somewhat)
• 90 per cent want Canada to leverage its power generating capacity and national energy infrastructure to incent more Canadian data centre construction (43 per cent agree strongly/47 per cent agree somewhat)

About the KPMG in Canada AI Business Adoption Survey

KPMG in Canada surveyed 750 business leaders between August 15 to Sept. 3, 2025. Of the total respondents, 35 per cent identified as a company Founder, President, CEO or a C-suite executive, and 64 per cent identified as Vice President, Director or Manager. 64 per cent of respondents were from privately held organizations and 36 per cent from publicly traded organizations. 30 per cent reported annual revenues over $1 billion; 20 per cent reported revenues between $700 million to $1 billion; 34 per cent reported revenues between $300 million to $699.9 million; 15 per cent reported revenues between $50 million to $299.9 million. 20 per cent of respondents worked in financial services, 18 per cent in energy and/or natural resources, 16 per cent in manufacturing, 15 per cent in technology, media and telecom and 15 per cent in consumer and retail, with the remaining respondents spread across other sectors.