Access to capital has long been a significant issue for many early stage technology businesses, or start-ups. Earlier this year, as a mechanism to encourage capital investment in these businesses, the Alberta government announced its proposal for a new Alberta Investor Tax Credit (AITC). The objective of the AITC program is to encourage investment in small and medium-sized businesses operating in non-traditional sectors that traditionally have a more difficult time attracting investment in Alberta, such as information technology, clean technology, health technology, interactive digital media and game products, and visual effects and digital animation. The stated goals of the AITC, as part of the Alberta government’s Alberta Jobs Plan, are to further diversify Alberta’s economy and create new jobs and opportunity.
The AITC will be introduced during the fall sitting of the Alberta Legislature and, if approved, will offer a 30% tax credit for private investment made in these Alberta businesses between April 2016 and December 31, 2019. Eligibility will be limited to Alberta investors who pay taxes in Alberta and invest in small and medium-sized business operating in Alberta. Small and medium-sized businesses are generally classed as those with fewer than 500 employees, and Alberta businesses are generally considered as those that pay 50% or more of their wages in Alberta. Offering this incentive in the form of a tax credit versus a deduction allows investors to reduce or eliminate taxes payable, on a dollar-for-dollar basis. As a result, a qualifying investment of $10,000 would reduce income tax owing or payable by a total of $3,000. Practically speaking, as individual investors make investments to help eligible businesses grow, they will receive an immediate return in the form of tax credits.
It is expected that the AITC will provide a total of $90 million to eligible investors over a period of three years. Applications will be accepted beginning January, 2017, and considered on a first come first serve basis. If the program is successful, it is estimated that it will contribute up to $500 million to Alberta’s GDP.
The AITC has the potential to enhance Alberta’s venture capital community, and significantly increase investment in Alberta’s burgeoning technology sector, thus encouraging local investment in homegrown business. Although Alberta has had, and continues to have, large pools of capital available, direct mechanisms to encourage the flow of this capital into Alberta small business have traditionally been lacking. By following the lead of other Canadian provinces, such as British Columbia, Manitoba and Nova Scotia, that already use tax credits as incentives to attract investment, Alberta will be actively encouraging innovation and strategic growth, particularly in its non-traditional industries.
Potential investors and eligible businesses are well-advised to monitor further details regarding the AITC program to ensure that they are up to date, and ready to utilize and take full advantage of the program when the application period opens in the new year.