This memo is a complimentary piece to Build Canada’s Canada Can Attract the World’s Best Entrepreneurs

Introduction

Canada trains some of the best engineers, scientists, and founders in the world. Unfortunately, we lose too many of them to the country next door. It has become an all too familiar story – Canada provides and often pays for the education of our most talented young people, the United States collects the return.

This is a proposal to flip that script. It won’t be easy. A STEM graduate with a Canadian university degree often holds two offers: one in the US, and one at home with two thirds the pay⁵. We cannot fault the choice these individuals keep making, but we can change the math behind it. And we can change what it feels like to choose home.

To understand what drives decision-making for many of these graduates, it’s essential to unpack the various factors at play from an individual’s perspective. One framework that can be helpful in this regard is “The Three Cs”. This model represents how highly talented STEM graduates make decisions on where to live, work, and build their careers.

Cash, at the core, is the key lever for talent in decisions. Connectivity and Culture are both “multipliers” in this model, and they are a result of the environment and systems that surround talent and provide growth opportunities.

The focus of this memo is Cash. Canada can deploy various policy levers to level the playing field and provide better financial incentives for our newly graduated, ambitious talent.

Our talent is one of Canada’s greatest resources. When highly talented Canadians choose to stay and build in Canada, all of Canada wins.

A Leak in our Nation’s Key Resource

Canada does not have a talent-production problem; it has a talent-retention problem. There are more skilled graduates here than ever before, with Canadian STEM graduates at the bachelor’s level or higher rising from 45,380 in 2010 to 63,250 in 2021¹.

But what happens after graduation?

The tax data shows 8% of Canadian non-STEM graduates have left Canada. For STEM graduates overall it is 11%; from top-ranked universities, 16%; and for the computer-science graduates among them, 23%¹. These are conservative floors: Statistics Canada counts anyone filing a Canadian tax return as still here, so a graduate who files from abroad, is invisible to these studies.

TD Economics calls the outflow a “silent brain drain” as much of it moves through US employer-sponsored visas which are largely invisible to emigration statistics. Also noted by the report is the appeal of leaving; US tech workers earn a median 46% more than their Canadian counterparts⁵.

Then how much higher is the true outflow number? A Brock University / University of Toronto study offers a ceiling. Instead of tax records, it tracked where individual STEM graduates of U of T, Waterloo, and UBC actually work — and found roughly 25% abroad, rising to 66% of software-engineering graduates, with 81% of that group in the United States².

Read together, these two metrics bracket the problem. Nationally, roughly a fifth of our most valuable graduates are gone within three years; and in the programs where output is worth the most, a majority of the class leaves.

Their absence translates to lost tax revenue for the country, lost companies, lost job creation, and more. This manifests as a much larger economic problem. The Bank of Canada finds that about 75% of the Canada–US gap in GDP-per-adult is concentrated in the top 10% of earners, and that Canada’s top 1% earn only about 40% of what comparable Americans do⁶.

And that, of course, is before accounting for lower US taxes. Below is a chart comparing the marginal income tax rate on Canada’s highest income bracket of $253K per year, relative to taxation at the same income level (in purchasing-power) in the US.

And if that isn’t enough to highlight the problem, surveys of Canadian STEM graduate students find a majority are already considering leaving, citing pay and opportunity as their reasons why⁷.

The Fix: Level the Cash Incentive Playing Field

Inspiration

Canada’s policy puts the reward in the wrong place: we subsidize the training of skilled people, and offer almost nothing for the crucial decision which determines the return on it all — staying and building here.

There are ample levers to be used to tackle this issue that remain undeployed. It’s time to rapidly address this leak through bold policy choices.

Ottawa already forgives student loans, by regulation, for doctors and nurses who spend time in under-served communities for up to five years — and has expanded this program twice in the past two years³⁴. It also has the power to change the tax system burdening our top talent.

The Three Cs is a model which demonstrates the core incentives posed to our talent, from most direct to general, which affect their decision on where they will establish and build their career.

This memo proposes federal policy intervention to bolster the most direct factor – Cash. The other factors in the model are multipliers, Culture and Connectivity, which are equally important to the success of our talent ecosystem.

Improving Cash Incentives

Cash is the single largest factor acting on the individual. Pay, and taxation on that pay, heavily influence the take-home math for a graduate or founder weighing competing offers.

Canada, as it stands, does not offer the winning equation: US tech workers earn a median 46% more than their Canadian counterparts before taxes, on a purchasing-power basis — and at current USD:CAD exchange rates, the gap grows wider⁵.

Ottawa controls enough levers that could help level the playing field for Canadian companies.

Bring Canada’s compensation up to par with international competitors using four federal levers:

1. “Stay-and-build” debt relief or tuition refund. Extend the existing Canada Student Loan forgiveness mechanism to graduates in high-demand fields — computing, engineering, applied sciences, health, entrepreneurship — who stay and work in Canada for five years, mirroring the design used for rural doctors and nurses and delivered the same way, by regulation under the Canada Student Financial Assistance Act³⁴. For those who did not borrow, provide the equivalent in tuition paid as tax credit over a two year window in years four and five of working in Canada. Tie it to Canadian residence and ensure they’re employed by Canadian companies.

2. A high-demand-talent deduction. Introduce a personal income-tax deduction for the specific high-demand roles talent gravitate towards US firms for, modelled on the Northern Residents Deduction — a per-role deduction that raises take-home pay directly, which is cleaner than subsidizing employers⁸. Target it narrowly to where retention is measured weakest, sunset and review it on timely intervals, and have the Parliamentary Budget Officer cost it.

   An even bolder and more effective solution - although potentially more challenging - would be to reform personal income-tax structure across the board to make it competitive with the US without role-specific carveouts.

3. A founder incentive. Introduce a five-year founder’s tax break: a personal income-tax exemption on up to the first $200,000 of annual income for founders of newly incorporated Canadian-controlled private corporations, which declines over the period (full exemption in years one and two, then 75%, 50%, and 25%). This is the same declining-exemption design Quebec recently used (up until 2025) in its tax break for foreign researchers and experts.

   Condition eligibility on the company keeping its residence, core team, and IP in Canada, with clawback on redomiciling. Include anti-avoidance rules so it rewards building new companies, not restructuring.

4. Tax deferral for proceeds reinvested into another Canadian company. The tax system should actively incentivize founders or early employees to sell and roll gains into their next Canadian company. There is an existing mechanism for this – section 44.1 of the Income Tax Act permits a capital-gains deferral for reinvestment in small-business shares – but its drafting is so narrow it goes essentially unused.

   Expand it by broadening business eligibility so more startups are eligible, lengthening the reinvestment window, and including coverage of the instruments early-stage investors actually use — so that gains reinvested into a qualifying Canadian business are deferred until the capital finally leaves the ecosystem. Build Canada has detailed this rollover, alongside the companion capital-gains reforms, in a previous memo, Reward Risk and Reinvestment⁹.

The Multipliers

Improving Cash incentives is a great starting point. It is where the government can move fastest, and realistically nothing else matters if the take-home math for high caliber talent keeps failing. But two multipliers decide whether the talent that stays also thrives: the connectivity between builders, and the culture that surrounds them in Canada.

There is no proposed policy for either multiplier in this memo. They are simply named because a country that fixes the math will inevitably see the multipliers improve as well.

Connectivity has been in a steady improvement state for years in Canada: programs like C100, Next 36, and Creative Destruction Lab are developing at a strong pace, connecting Canadian founders to the mentors and capital they need to scale from home. The more we build, the more robust these networks will become.

On the other hand, Culture has always been a point of contention for the ambitious in Canada. Entrepreneurs across the country describe the same experience: their ambition is mistaken as arrogance, and one entrepreneur’s win is treated as someone else’s loss. Canada must get better at celebrating its builders.

When a founder builds and wins here, the jobs, the taxes, and the reinvested capital land here, and all of Canada wins with them. Saying so — loudly and habitually — costs nothing and signals everything.

Conclusion

Canada cannot pay LA Dodgers prices for talent — almost no one can. But look at what the Blue Jays just did. They developed their own stars, and they paid big for crucial players. And that roster took the richest team in baseball to the final game of the 2025 World Series.

The lesson is not that money doesn’t matter; it’s that a smaller market still must pay enough to stay in the game, and then win their players on loyalty, development, and passion as the reasons to stay.

Canada is the best country in the world. So let’s prove to our most promising new graduates that we have their back – so that they can ultimately have ours as we build the future we envision.

Sources

[1] Statistics Canada, Choi & Hou, “Retention of STEM graduates in Canada,” Economic and Social Reports, July 23, 2025. https://www150.statcan.gc.ca/n1/pub/36-28-0001/2025007/article/00004-eng.htm — Tier: T1. Load-bearing (exhibit).

[2] Spicer, Goodman et al. (Brock / U of T), “Reversing the Brain Drain” (2018). https://brocku.ca/social-sciences/political-science/wp-content/uploads/sites/153/Reversing-the-Brain-Drain.pdf — Tier: T2 (attributed).

[3] Employment and Social Development Canada, “Canada Student Loan forgiveness for family doctors and nurses.” https://www.canada.ca/en/services/benefits/education/student-aid/grants-loans/repay/assistance/student-loan-forgiveness.html — Tier: T1.

[4] Canada Gazette, Part I, Vol. 159, No. 7 (Feb 15, 2025). https://gazette.gc.ca/rp-pr/p1/2025/2025-02-15/html/reg1-eng.html — Tier: T1.

[5] TD Economics, “The Silent Brain Drain” (May 2026). https://economics.td.com/ca-silent-brain-drain — US tech workers earn a median 46% more (pre-tax) than Canadians; outflow via US work visas; top-rate threshold ~$218,460 PPP vs CA ~50% above US$1M and no state tax in TX/FL. Tier: T2 (attributed).

[6] Bank of Canada, Staff Working Paper 2024-49, “The Distributional Origins of the Canada–US GDP and Labour Productivity Gaps” (Dec 2024). https://www.bankofcanada.ca/2024/12/staff-working-paper-2024-49/ — ~¾ of the GDP-per-adult gap sits in the top 10% of earners; top 1% earn ~40% of comparable US incomes; selective emigration a significant contributor. Tier: T1. Load-bearing.

[7] Ottawa Science Policy Network graduate-student survey (2024), via Research Money. https://researchmoneyinc.com/article/-brain-drain-looms-of-canada-s-best-and-brightest-talent-ottawa-science-policy-network-study — a majority of surveyed grad students were considering leaving; pay/opportunity the top reasons. Tier: T3 lead / T2 survey (attributed).

[8] CRA, “Line 25500 – Northern residents deductions” (Income Tax Regulations). https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-25500-northern-residents-deductions.html — individual deduction (~$11/day) delivered by regulation; design precedent. Tier: T1.

[9] Build Canada, “Reward Risk and Reinvestment: two tax reforms to make Canada more productive” (May 2026). https://www.buildcanada.com/memos/reward-risk — companion memo; s. 44.1 rollover expansion and per-business LCGE. Tier: T2 (own publication).