Bennett Jones
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.