On September 29, 2016, Alberta's Minister for Economic
Development and Trade was in Calgary to announce a plan to
introduce a 30-percent tax credit program for investments in small
businesses during the fall sitting of the legislature. Alberta has
a well-educated work force and Alberta entrepreneurship produces
numerous important innovations that are the basis of emerging
business opportunities. Those opportunities can create wealth and
employ Albertans. A difficulty for many such early stage businesses
is access to capital. As a result, non-profit organizations such as
the CapitalRoad Foundation have created events such as the Banff
Venture Forum to bring leading technology companies together with
investors. The Alberta Government has also supported a variety of
initiatives to facilitate access to capital for these
entrepreneurial businesses. The proposed Alberta Investor Tax
Credit may be an important additional element in addressing the
access to capital issue.
The proposed tax credit program is designed to grow the economy
by encouraging investment in Alberta's small businesses. While
specific requirements about eligible investors and companies have
not yet been announced, the Government has indicated that
eligibility will be limited to Alberta investors who pay taxes in
Alberta. The credit will apply to companies that are substantially
engaged in proprietary technology research, development or
commercialization; interactive digital media development; video
post-production; digital animation; or tourism. These criteria were
developed through consultation with business and investment leaders
in Alberta with the stated aim of encouraging economic
diversification. With a total budget of $90 million, the Government
has stated that the program would support up to 4,400 new jobs in
Alberta and would contribute up to $500 million to the
province's GDP. The proposed credit would be available for
investments made between April 14, 2016, and December 31, 2019, and
would be provided on a first-come, first-served basis.
Tax credits (in contrast to deductions from taxable income)
operate to reduce or eliminate taxes payable, on a
dollar-for-dollar basis. A qualifying investment of $100,000 would
thus reduce Alberta income tax owing by $30,000. It remains unclear
whether the proposed credit would be non-refundable or refundable,
the latter of which could be used not only to offset Alberta tax
payable but to create a cash refund.
The proposed tax credit program will put the onus on investors
to make the final decision on risk and efficiency, while keeping
their money in Alberta and putting it toward growth-oriented firms.
Investors will benefit through reduced risk of investing in
innovative, but often unproven business opportunities. Businesses
receive a corresponding benefit, as the credit should have the
effect of reducing an investor's reticence in making an
investment. By looking to the investor to decide on the target
investment, the program encourages prudence and care in
understanding the particular business opportunity. This should
encourage eligible companies to clearly present their value
proposition to investors.
There is little doubt that small businesses represent a critical
engine for innovation and economic growth. The Government
recognizes that Alberta has large pools of capital available, but
currently few direct mechanisms to encourage the flow of this
capital into the province's small businesses. The program
should aid in levelling the playing field with other jurisdictions,
such as British Columbia, that already use tax credits as
incentives to attract investment. If enacted, the program would be
a positive step by the Government towards reinvigorating and
promoting entrepreneurship in the province.
Potential investors and eligible companies should monitor
further details to ensure they can utilize and take full advantage
of the program. Since the credit will be offered on a first-come,
first-served basis, and the demand is likely to be considerable,
investors and companies should begin to prepare now.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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