Canada Cuts Venture Capital Red Tape

by Mike Godfrey, Tax-News.com, Washington

10 September 2010

The Canadian Minister for Finance, Jim Flaherty, has highlighted a Budget 2010 measure that will strengthen the ability of Canadian businesses, particularly high-technology firms, to attract foreign venture capital.

“The best way to build a more competitive economy is to create an environment that allows the entrepreneurs who employ so many Canadians to succeed and expand—not an environment that stands in the way of their success with high taxes and red tape,” said Flaherty at an event at the Communitech Hub in Kitchener, a new facility dedicated to the growth and commercialization of Ontario’s digital media industry. “That is why, in Budget 2010, we narrowed the definition of taxable Canadian property, eliminating the need for tax reporting under the Income Tax Act for a wide variety of investments in Canadian corporations. As a result, the world has yet another reason to consider Canada an investment destination of choice.”

By eliminating the unnecessary paperwork associated with reporting requirements for a large number of transactions that were already exempt from Canadian tax, the government’s measure is intended to make it easier for Canadian businesses such as high-tech firms to attract the foreign capital needed to capitalize on innovations and introduce new services and technologies. This measure also brings Canada’s domestic tax rules more in line with tax treaties and with the tax laws of its major trading partners.

In his remarks, Flaherty also summarized other measures taken by the government of Canada to help Canada’s high-tech sector. These include more than CAD8bn (USD7.75bn) in new funding for science and technology initiatives and infrastructure since 2006, more than CAD280m in Budget 2010 to promote partnerships and collaboration between businesses, academia and government, and tax reductions resulting in an overall income tax rate on new business investment that is the lowest in the G-7 and below the average of member countries of the Organisation for Economic Co-operation and Development.

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