The investment tax credit discussion in Atlantic Canada has been intensifying lately, and now Senator Colin Deacon is taking up the cause.
These provincial taxation measures give private investors a tax break if they invest in approved companies. All four Atlantic provinces now offer these credits, as do most Canadian provinces and American states.
Players in the startup community have been pushing for improvements for ages – a position I’ve advocated for in this column several times over the years. Those calls are now intensifying. In June, a group headed by Atlantic Canada Opportunities Agency exec James Curry issued a discussion paper recommending these credits be harmonized and be offered to investors outside a company's home province. And now Deacon, a serial entrepreneur named to the Senate last summer, is pushing for similar changes.
“A good startup ecosystem needs a good angel group,” said Deacon in an interview last week. “Equity tax credits are a great way for governments to leverage their investment in startups . . . through private investments.”
He argues that equity tax credits (the name of the Nova Scotian program; each province has its own name for them) help to generate recurring waves of new companies year after year. That ensures the startup community keeps growing.
The main problem is that each province grants the credit only to taxpayers who live in that province. This means the credits can attract only a small pool of investors – exceptionally small in dollar terms given that there is less wealth in Atlantic Canada than in other parts of the continent.
Curry’s paper – co-written by BioNova head Scott Moffitt, Ogden Pond CEO Sean Sears, and Grant Thornton tax partner Keith MacIntyre – recommends that Atlantic Canada “regionalize” investment tax credits. That means the rules would be uniform across the region. (New Brunswick currently has the most generous tax credit by a long shot.) And it would mean investors in one province could receive a credit for funding a company in another province.
Deacon and the paper’s authors even want the credits to reward investors who live outside the region. Some American states such as Arkansas and Minnesota already allow external investors to benefit from their tax credits. The thinking is that it's more important to get money into growing companies than be concerned about where the investor is based.
So far, the talk about enhanced credits is just that – talk. But there is more talk than a few years ago. (BioNova and Grant Thornton will continue the discussion with an information session in Halifax on Wednesday at noon at the Innovacorp Enterprise Centre on Summer Street.) Deacon says the discussion is intensifying because the region’s startup community has proven it can generate wealth, exports and jobs, and policy makers are looking for ways to perpetuate that success.
It’s hard to say what will happen. One possibility is that nothing will change – finance departments usually prefer not to give up revenue. The four provinces could harmonize and enhance their tax credits. Or possibly, the federal government could offer a tax credit, which would erase the provincial constraints.
Deacon said the long-term goal is a national tax credit.
“I’m a big believer that the federal government should have an equity tax credit nationally,” said Deacon. “This is crucial to our economy.”