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Advantages for International Investors - Canada Opens Doors

Guest post by: Lana Larder

Article Overview: Canadian Federal government eliminate Section 116, pertaining to venture capital and private equity industry, removes tax barriers, welcoming the flow of capital across Canada's border. Its removal provides an important signal to international investors that Canada welcomes their contributions to growing companies. Canada is open for business!

Advantages for International Investors - Canada Opens Doors

Go Canada Go



Canadian Federal government eliminate Section 116, pertaining to venture capital and private equity industry, removes tax barriers, welcoming the flow of capital across Canada's border. Its removal provides an important signal to international investors that Canada welcomes their contributions to growing companies. Canada is open for business!

This gives Canadian companies across the country tax law changes to give them the advantage to compete on the global stage. By amending the definition of "taxable Canadian property" to exclude shares of Canadian private companies (where not more than 50 % of their value is derived from real property in Canada, Canadian resource property or timber resource property), the government has significantly reduced administrative and, in some cases, economic barriers to international investment in Canadian-based innovation and technology. The changes in tax legislation are among the most significant changes to capital gains taxation since the introduction of taxation of capital gains in 1972. This change puts Canada at the top of the list of places to invest globally.

The following describes the tax barriers that were removed and that are no longer preventing international investment in Canada:

• Withholding and Section 116 certificate process - The majority of foreign VCs are not subject to Canadian tax when they sell an investment. However, they may face a delay of many months to work through the Section 116 tax clearance process until funds can freely flow to them. Many foreign VCs are structured such that each of the investors in the VC - sometimes hundreds or even thousands - is subject to this clearance process as if they held the investment directly. This delay results in lower returns and frequently causes direct financial loss to investors.
  
  
• Requirement to file Canadian tax returns by foreigners who don't owe taxes creates hundreds of pages of unnecessary paperwork - Canada imposed tax filing requirements in circumstances where no taxes were payable by these investors. When a foreign VC sells an investment, each investor of the foreign VC has to file a Canadian tax return even if they don't owe any taxes. This results in literally hundreds of pages of documents that are required for signature and processing for a single sale. This tax return filing issue also applies to certain Canadian public companies.
  
  

This change means Canada is s more welcoming environment for international investors. In the majority of cases, non-residents who were not taxable on the disposition of their investments in such shares due to Canada's broad international tax treaty network, are now exempt from tax under Canadian domestic law without having to apply for treaty relief. As a result, they are no longer required to comply with the Section 116 tax clearance certificate procedure or file a Canadian income tax return. The changes also remove what were perceived to be barriers for many venture capitalists who considered the previous administrative requirements and economic delays for each investor to be strong deterrents to investing in Canada.

The removal of the Section 116 tax barrier is seen as a tax master stroke by the Canadian government enabling Canada's emerging technology companies to access deep pools of international capital and the vast international customer markets to which those pools are connected. There are predictions that over time this move will help propel Canada's extraordinary technology into global industry leadership and will likely be viewed in the future as a defining moment for the Harper government in Canadian innovation. This amendment will have an immediate, positive and direct impact on Canada's ability to grow the Canadian technology and innovation industry. Go Canada Go!

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Article Tags: angel investors, business advantages, canada, canadian federal government, International investors, private equity industry, tax barriers



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