International investors: It's now easier to fund Canada's innovative start-ups

Canadian investment borders become friendlier

In yesterday’s federal budget, the Harper government announced significant changes in tax legislation that will make it much easier for US and other international venture capital investors to fund Canada’s most promising start-up companies.

These changes come at a most opportune time as the CVCA, Canada’s Venture Capital and Private Equity Industry Association, and their research partner Thomson Reuters recently reported that venture capital investment in 2009 reached its lowest level in thirteen years.

The tax changes are described in the press release from Deloitte &  Touche LLP, who worked with the CVCA in 2007 on a survey of 528 VCs from around the world that cited Canada’s unfavourable tax environment as a key reason for not investing in Canadian companies. Simply put, the changes eliminate the need for VC funds and their limited partner investors (some funds with hundreds or thousands of individual investors) from having to file Canadian tax returns and work through an administratively burdensome tax clearance process to avoid withholding taxes on income from sale of shares in a Canadian private company that usually was not taxable income to the foreign investor.

This is also great news for management teams in Canadian start-ups who should no longer need to wrestle with complex cross-border legal structures for their companies in order to meet the needs of both US and Canadian investors in an investor syndicate. Management teams can focus on finding the right global investor for their business and leveraging that investment to launch and grow their business.

Hats off to the federal government for an initiative that reduces administrative costs, has minimal impact on government revenues and most importantly provides Canadian companies with an advantage they need to attract global capital and compete on the world stage.

Related Blogs

 

Open access for international investors: More…
To shed further light on Kerri Golden’s excellent recent post, the stumbling block that has been removed in this case is the Section 116 – a series of tax requirements that imposed onerous re

Today’s VCs tell you the secrets of a successful pitch
At last week’s Entrepreneurship 101 lecture on raising money, leading venture capitalists divulged the secrets of successfully pitching to an investor. The secret is in the relationship. The pa

VCs to entrepreneurs: Don't drink the technology Kool-Aid
VCs: Great technology is not enough

Overheard at BioFinance
BioFinance – the annual Ontario biotech jamboree – was held at the Toronto Marriot Hotel from April 6-8, 2010. The mood was noticeably brighter than last year on account of signs of activity in t

View from the Valley: Canada?!
This is the “View from the Valley” update, from Joelle Faulkner. I am an engineer/lawyer/business person who has spent time developing medical devices at Stanford in the Silicon Valley/MedTech Me

BioFinance ’11: Canadian biotech is back!
For several years, going to BioFinance was about as much fun as listening to a Leonard Cohen album. Now, however, we’re starting to see smiling faces.  We’re not out of the woods yet by

Tags: canada, finance, funding, investors, policy