Thank you to Bruno Steppuhn at Diversify Alberta for more details on Alberta’s new investor tax credit.
Based on information to date it appears that although the Alberta government has announced up to $45 million a year over the next two years for investors, timing details and ability to apply and use the credit are not available yet. This will cause delays and downward pressure on valuation as investors wait for their pending 30% discount. It is now critical that the government launch the program immediately to avoid negative consequences of a good policy.
6 Things You Need To Know About Alberta’s New Investor Tax Credit
During multiple administrations, the debate for Alberta’s economic diversity and strengthening of our provincial economy has always been discussed but rarely acted upon. The NDP’s Alberta Jobs Plan, more specifically The Investor Tax Credit (ITC) program within the plan, with the support and voice of the business communities around the province, puts in place a competitive advantage that Alberta has never seen before which will attract investors, support business growth, and create new tax revenue streams.
The Alberta ITC will attract more investors to Alberta’s tech companies
The ITC program is designed to put the province on a 21st-century economic trajectory by attracting more private equity investments which help small businesses in varying sectors get their start. The program is a $90m cash injection in the form of tax credits to investors over 2 years that directly translates into a total of $300m in available capital to Alberta-based startups and small businesses. By offering a 30% tax credit incentive, investors within Canada will now be faced with less risk as a result of their investments in Alberta-based companies. Essentially, for every $100 invested, the risk to the investor will now be reduced to $70. This incentive makes Alberta an attractive region for investors to place risky bets on companies developing solutions for everything from Health Science technology to Consumer Products. Not to mention, the inclusion of companies developing Oil and Gas technologies, aimed towards increasing efficiency and productivity. Though the final details are still being ironed out, the current administration will be working with local business communities to finalize the parameters of the program over the coming months.
Better Late Than Never; Alberta Joins Other Provinces With The ITC
Alberta is one of the only provinces remaining without an active investor tax credit program. A study conducted by the British Columbia Ministry of Small Business, Technology and Economic Development determined that between the years of 2001 to 2008, the province of British Columbia (BC) was able to produce approximately $2.4bn in equity investments and created over 4000 jobs by leveraging $256m of its investor tax credit program. They concluded that even during the 2008 recession, the program displayed positive growth and that for every $1 invested, on average companies were able to produce $2 in additional tax revenues for the province. Though, there’s plenty of money that has been made in the province through Oil and Gas, historically, investors have found it risky to invest in non-traditional industries in favor of companies within their realm of expertise or in more attractive regions like BC and the United States (US). Alberta’s new ITC program will put investment dollars on a level playing field with that of BC and has the potential to attract money from Canadian investors from other provinces. In addition, Alberta-based investors will seek fewer investment opportunities outside the province and outside of the country from the US.
How Did The Alberta ITC Program Come About?
This ITC program didn’t manifest out of thin air. The direct involvement for over a decade of four municipal governments, several business associations, and the province’s local business communities has finally landed on an administration willing to listen. The province has been in a stranglehold since the mid-1980’s when Peter Lougheed wrote the infamous white paper on the subject to his successor Don Getty. The Calgary Chamber of Commerce, historically clouded by the Oil industry, played a significant role in the creation of this program through its own research and marketing initiatives. Stephen King, a board member for the A100, states, “We are ecstatic! Many of us have pursued this program for more than a
decade.” The A100, a non-profit organization comprised of some of Alberta’s most successful entrepreneurs, believes that their mission of supporting Alberta’s economy is finally being holistically realized by the NDP. As a stakeholder organization in the province, their members are focused on initiatives across the technology ecosystem:
- Educating youth and young entrepreneursas well as supporting post-secondary educational institutions like the University of Alberta, the University of Calgary, and Mount Royal University;
- Supporting Startups and startup associations such as Startup Edmonton and Startup Calgary. The A100 is the supporting organizer for the province’s AccelerateAB annual tech conference;
- Encouraging and understanding Angel Investments for early-stage companies;
- Creating an attractive environment for Venture Capital firms such as iNovia Capital, District Ventures, and GE’s Zone Startups Calgary; notably helping re-start the VCAA a few years ago; and
- Lobbying support and leveraging municipal, provincial and federal government initiatives.
Why Is Capital Investment So Important?
So why is capital investment so important and whom does this benefit? Ongoing criticism suggests that this program isn’t here to help Albertans at all. In the short-term the criticism is partially on point. However, other initiatives within the Alberta Jobs Plan are helping to alleviate those issues. For the ITC program specifically, this is a win for the province’s long-term goals of balancing the budget while bolstering the province economically through the invitation to entrepreneurs and investors. It’s these two key stakeholder groups in the province of Alberta which will help create this paradigm shift for our economy. The program outlines non-traditional industries. These industries include:
- Information technology;
- Clean technology;
- Health technology; and
- Interactive media (video games, film, post production).
Take a step back a moment and look at the province’s recent history. Bioware, a successful AAA video game studio founded in 1995 and based in Edmonton, was acquired by Electronic Arts in BC for $860m in 2007. They continue to operate in Alberta to this day with more than 800 employees within the company. Some of these employees have gone to start their own ventures within the province such as Trent Oster of Beamdog, and freelance Illustrator Michael Grills, of Michael Grills Art and Illustration. iStock Photo, another Calgary-based startup was acquired by Ghetty Images in 2006 for $60m. The company also continues to operate within the province employing its fair share of Alberta’s technology centric talent.
The ITC program will derisk investments into Alberta-based companies while encouraging more entrepreneurial ventures, such as the above examples, to take a page from Silicon Valley and try their hands at innovation. There’s an abundance of money that has been and continues to be made in this province through the Oil and Gas sectors. The ITC program will also help diversify these traditional investment portfolios. Where a common Oil and Gas investment might be comprised of $100m, that same money could be used to fund the start or growth of more than 50 early-stage companies.
The Alberta ITC Has Two Primary Benefits
Existing regions that have a tax credit program show two primary benefits. The first benefit is to the business community. Investors look to put their money into companies to make more money. With this program, they can invest in organizations in Alberta. In turn, entrepreneurs in Alberta seeking capital and leadership from investors, now have a chance to attract investment from both within and outside the province. Secondly, the government can now benefit from increased tax revenue from growing companies and a growing employee tax-payer base. Though the announced budget is north of $50m with current balance projections bordering on the year 2024, the province needs an increase in business activity in order to bring these numbers into less scary circumstances to increasing the chance of its success. With the commodity prices contingent on the world trade market, the ITC program is one key component of the Alberta budget that will go a long way to locally ensuring that we exceed the province’s targets.
So, when can you as an entrepreneur or an investor take advantage of this program? The program officially starts January 1, 2017. The NDP has earmarked $20m for the last quarter of the 2016/2017 fiscal year. They project that the uptake will be much more significant in the following fiscal year which they’ve allotted $70m until March 31, 2018.
What To Do Until The Alberta ITC Program Starts
In the meantime, there are a couple of ways to wait out the time before the program kicks in. As an investor, get more involved in startup associations. See what Alberta has to offer and provide thought leadership to budding companies. There are plenty of groups in various industries that could use the experience you have to offer – Startup Calgary, Startup Edmonton, and Innovate Calgary to name a few. As an entrepreneur, be resilient and resourceful in your business. There are only a few more miles to go. Continue to change the world starting right here in your own backyard, then come together collectively and celebrate this battle together with the latest upcoming events.Accelerate AB, hosted by the A100 is just around the corner, and TEDx YYC is landing this summer. If you can’t attend, keep your ear to the ground. There will be more before the year is up. For now, on behalf of the business communities in this province, Thank you to this current provincial administration. We can’t wait to see the growth that the Alberta Investor Tax Credit program will ignite.
(link to original article: https://diversifyalberta.com/2016/04/25/6-things-you-need-to-know-about-albertas-new-investor-tax-credit/)