In this Update

  • the Investing in a Diversified Alberta Economy Act, which details the Alberta Investment Tax Credit (AITC), received royal assent late in 2016
  • details about the executive compensation restrictions in the AITC
  • implications of the Alberta Enterprise Corporation funding prohibition
  • changes to the AITC after the Alberta government passed an Order in Council on April 11, 2017

Introduction

In late 2016, Alberta introduced the Alberta Investment Tax Credit (AITC), with the goal of encouraging investment in the technology and tourism sectors. The Investing in a Diversified Alberta Economy Act, which detailed this credit, received Royal Assent on December 9, 2016, and the online application portal opened for Alberta small businesses to apply for the AITC on January 16, 2017.

Executive compensation restrictions

The original eligibility criteria for the AITC required companies ensure their articles contained a prohibition against the payment of fees or remuneration of any kind to any shareholder, director or officer of the corporation, or to any affiliate or associate of these persons, except as permitted by an annual ordinary resolution of the shareholders.

This restriction presented a hurdle for many of the small companies that the AITC aims to benefit. Typically, employees of such companies, particularly those in the emerging technology space, are also shareholders. The compensation of these employees, as well as the directors and officers of the company, is generally derived from various sources, including salary, bonuses and stock-based compensation. As a result, it is not at all common for a company’s articles to contain the restriction required by the AITC eligibility criteria, and any company desiring access to the AITC program would have needed to amend its articles to include such a restriction.

The eligibility criteria originally introduced in December also required a company to pass an annual ordinary resolution of the shareholders approving the compensation of each employee, director and officer. The eligibility criteria prevented any shareholder that would receive some form of compensation from the company (directly or indirectly) from voting on the resolution. This was viewed by many as being a significant hurdle to eligibility, as many small start-up companies are owned entirely by employees, and requiring passage of a compensation resolution on which none of those owners were allowed to vote seemed an unattractive route to the transparency that the original criteria seemed formulated to achieve.

Alberta Enterprise Corporation funding prohibition

The original AITC regulations contained a provision which would disqualify companies from becoming eligible for the AITC if they have received any direct or indirect investment from the Alberta Enterprise Corporation (AEC) after the coming into force of the regulations.

The AEC is a Crown Corporation heavily involved in Alberta’s technology sector. Typically, venture capital corporations (VCC) with a focus on the technology sector receive funding from the AEC to direct into Alberta-based technology companies. Since the VCC will pool its funding from the AEC and other sources, then direct those funds to a company, any company that obtains an investment from the VCC which received funds from the AEC would be ineligible for the AITC by virtue of this requirement.

April 11, 2017 Order in Council

After receiving much industry feedback that the executive compensation restrictions and the prohibition on AEC funding made the AITC unworkable for many Alberta small businesses, the Alberta government passed an Order in Council on April 11, 2017 which implemented the following changes to the AITC:

  • The requirement that companies ensure their articles contain a prohibition against the payment of fees or remuneration of any kind to any shareholder, director or officer of the corporation, or to any affiliate or associate of these persons, except as permitted by an annual ordinary resolution, was narrowed to apply only to VCCs;
  • The rule preventing shareholders who might receive such fees or remuneration from voting on ordinary resolutions to approve or ratify the payment of any fees or remuneration by the corporation to shareholders, officers or directors was narrowed to apply only to VCCs; and
  • The requirement that a small business not receive direct or indirect investment from the Alberta Enterprise Corporation in order to be eligible for the AITC has been repealed.

The application window for the AITC will remain open until the annual budget has been allocated. We invite you to contact the authors if you have any questions about the availability of the AITC in your particular circumstances.