Canada’s 2010 budget will encourage investment in tech sector companies

by Jeff Wiener on March 11, 2010

This is a guest post written by Jerry Paskowitz, Partner Sloan Group. In a recent TechCrunch Blog, Michael Arrington wrote about the recent changes to Canadian tax legislation that will facilitate and even encourage investment in tech sector companies. It is expected that new ventures activity will increase in the near term.

The changes were part of the March 4 Federal Budget delivered in the House of Commons by Finance Minister Jim Flaherty. The government is being congratulated by tech analysts as a no-cost boost to the industry. The new rules are a wee bit technical, but I will try to explain it in without taking a byte out of your grey matter.

The new definition of “taxable Canadian property” excludes shares Canadian private companies as long as less than 50% of their value is not in real estate, natural resource property or timber property. As a result, when foreign investors dispose of their investments in such companies, they no longer have to comply with the onerous requirements of the Income Tax Act. These requirements had forced foreign investors to file a Canadian tax return and pay tax, or undertake a complex and time-consuming process to obtain tax relief.

The changes announced by the government in last week’s Budget could be the most important since Edgar Benson gave us Capital Gains Tax introduced in 1972. With the removal of Canadian tax on foreign investors’ gains, Canadian companies should be able to access the global investment community to attract capital and further the growth of the technology industry.

Representatives from the tech business community had long complained that foreign venture capitalists who were not subject to Canadian taxation still had to go through a long process before they could get access to the profits earned. If the foreign venture capital fund was comprised of a group of investors, each one was subject to the same clearance process as if they were direct investors. These delays sometimes caused the profits to be eroded during periods of volatile currency fluctuations. Now, these barriers are a thing of the past and Canada joins the other developed countries such as the UK, countries of the EU and the USA that do not impose foreign investor taxes and red tape.

We are looking forward to much needed economic growth in 2010 and subsequent years.

Jerry Paskowitz,
Partner, Sloan Group
email: Jerry at SloanGroup.CA

Jerry Paskowitz is a Chartered Accountant and Certified Management Consultant practicing in the Greater Toronto area. He holds a designation as a Specialist in Information Technology from the ICAO and assists clients in a wide range of business and tax planning matters.

Sloan Group is comprised of Sloan Partners LLP, providing assurance, accounting and tax planning and compliance services, Infologix Inc. which in addition to its other consulting services is a leader in SR&ED claims preparation and support, and Infonumerix Inc. which provides a full range of accounting services to SME’s.

Sloan Group is located at 4646 Dufferin Street, Suite 6, Toronto. 416-665-7735

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