The federal budget includes a plan to reverse a big decline in Canadian venture capital investment, starting with a change to tax law.
A long-time plea by Ottawa technology magnate Terence Matthews and industry lobbyists was answered when the government cancelled Section 116 of the Income Tax Act, which forces foreign investors to file Canadian returns when they sell investments.
“At a minimal cost to the government, this amendment will have an immediate, positive and direct impact on Canada’s ability to grow a robust Canadian technology industry,” Matthews said in a release. “By sending a clear message to international investors that Canada is ‘open for business,’ the government will make Canadian companies more attractive to foreign investors overnight.”
Matthews recently announced he was seeking investors for a $200-million investment fund to promote development of new companies.
Venture capital investment fell 27 per cent last year across Canada to $1 billion, the lowest in 13 years. Just $90 million was raised by Ottawa companies, half the amount they raised in 2008.
The funding crash is part of a global problem, with venture investment at a low ebb.
The government said the move would “eliminate the need for tax reporting (and help) high-growth companies to attract foreign venture capital.”
As reflects a government trying to reduce a big deficit, there was no significant pump-priming for funding programs that have helped many tiny companies survive the investment crash. Instead, the government put new money into a few key technology areas and promised to improve the efficiency of administration of $4 billion in investment tax credits.
The budget put $35 million over two years into the search for new sources of medical isotopes in the wake of repeated shutdowns at a Chalk River AECL reactor and other old reactors around the world, which have hit patients and hospitals around the world.
The TRIUMF nuclear cyclotron in Vancouver receives $126 million over five years to drive more research.
The budget puts another $135 million into a National Research Council regional innovation clusters program, which funds private- and public-sector collaboration in 11 clusters across the country.
However, there was no new funding for the NRC Industrial Research Assistance Program, which helps many tiny companies stay afloat.
Unlike fresh venture capital investments by Quebec, Ontario and other governments, there was was no extra funding in this budget for Business Development Canada to invest in new companies.
The budget promises to speed processing of scientific research and experimental development tax incentives, which are vital to many technology companies.
Russ Roberts, a spokesman for the Canadian Advanced Technology Alliance, said the budget, for the first time, recognized there was a productivity gap in the Canadian manufacturing and services sectors, holding back growth. “We are pleased to see that they now have the issue in focus, but we want to see the plan for addressing the issue.”
The Information Technology Association of Canada said the budget was short on specifics to back a promise of creating a new digital economy. The only new program it could find was $40 million for federal agencies to use and demonstrate innovative technology developed by small and medium-sized firms.
The Section 116 tax rule has long been an issue because it requires U.S. venture capital investors to file individual Canadian tax returns when they sell Canadian investments.
