Budget tax changes seen boosting foreign tech investment

Canada’s biotech industries and technology companies welcomed a tax tweak in Finance Minister Jim Flaherty’s budget, saying he has removed a major barrier to foreign investment in the industry.

While Thursday’s federal budget contained no major announcements for either personal or business taxes, a change to Section 116 will make it easier for foreign venture capital firms and others to invest in Canadian private companies, they said.

"The government has just broken down a barrier that has stood in the way of attracting capital from U.S. investors and from all around the world," said Iain Klugman, president and chief executive of Communitech, the organization that represents Waterloo Region tech companies. Waterloo is the home of global tech giant Research in Motion.

"This move streamlines the investment process, eliminates unnecessary paperwork, and puts Canada on an even footing to compete in the global economy," he said.

Prior to the change, investors in venture capital firms were required to make individual tax filings. Once an investment was sold, they would be required to go through the process of filing even if no taxes were owed.

“The changes will cut out the admin and the burden,” Scotiabank Senior Manager of Taxation Services Adam Salahudeen said. “It was a barrier, with some not even looking to invest because it was too much hassle.”

BIOTECCanada, which represents biotech firms, said it had been pushing for the changes for some time.

“This change will create a great incentive to invest in our innovative Canadian firms, and that’s what we need to keep our emerging companies growing and continuing to bring new ideas from the lab to the marketplace,” the association’s President and CEO Peter Brenders said in a statement.

Overall, the focus of Flaherty’s budget was to pave the way for tighter fiscal control as the government seeks to pay down the $53.8-billion deficit. However, it contained few aggressive debt-cutting measures, deferring more drastic measures for future budgets when the global economies are stronger.

“It was a strange budget, with none of the big changes or announcements we saw last year,” Salahudeen said. “Still, I think it was reasonable.”