Tax credit fails to fuel economic engine

A new tax credit program intended to help diversify the Alberta economy by boosting the flow of capital into small and medium-sized businesses has gotten off to a slow start.

The Alberta Investor Tax Credit, which formally launched in January, offers a 30-per-cent tax credit to private investors who put money into companies doing work in non-traditional sectors such as information technology, clean technology, health technology, interactive digital media and game products, and digital animation.

The program — announced by the NDP government in the spring of 2016 — was hailed at the time by business groups that predicted it would help innovative early-stage companies grow and create jobs. Entrepreneurs have long complained that investment dollars in Alberta tend to flow toward the province’s oil and gas industry, and a tax incentive program — similar to a very successful B.C. program — was viewed as one way to get muchneeded venture capital into the hands of less traditional sectors.

However, nearly half a year after the program’s launch, no tax credits have actually been awarded. Nearly 100 small and mid-sized companies that have applied for approval under the program — a necessary step before they can start pitching the tax credit as an incentive to potential investors — are still waiting for their applications to be processed.

(An additional 55 companies have been successfully registered.)

Sebastian Elawny — one of the partners behind AITC Venture Capital Fund, a new Albertabased venture capital corporation formed specifically to take advantage of the tax credit program — said the pace of the program has been “frustrating.” He and his partners had planned to start raising money for their fund months ago, but have been delayed due to uncertainty around some of the program’s criteria and its slow rollout.

“Obviously, when a new program gets set up, there’s an element of, ‘it’s just going to be slow,’ ” Elawny said. “But our plan was actually to raise $20 million in this first year, and I just don’t see that being remotely possible — based on the speed this is happening.”

Elawny added he has already been approached by 15 to 20 technology companies that want to start soliciting funding, but are still in the queue waiting for approvals under the program.

“Most of those should probably have been approved pretty quickly or pretty easily, because they meet the criteria flat out,” he said. “So, yeah, the funds aren’t flowing yet ... But I do think it’s important that they (the government) get this right rather than start throwing out cash to companies that don’t qualify.”

Part of the reason for the slow pace is that the government has already had to make a number of changes to the program after the first version was met with criticism from potential participants. The first version of the tax credit program prohibited companies from taking part if they had previously received money from venture capital corporations funded by the Alberta Enterprise Corp., a Crown corporation that invests in technology venture capital funds with the goal of boosting capital flow to early-stage companies. The government has since changed that rule to allow more companies to be eligible.

The government also eliminated a rule that would have required companies to change their articles of incorporation regarding payment of compensation to shareholders, directors and officers — another regulation that many prospective participants found too restrictive.

Sandi Gilbert — founder and CEO of SeedUps Canada, a company that helps early-stage companies prepare for raising capital — said the program had some initial “glaring flaws,” though she emphasized she still believes in its potential to make a difference.

“I still think we’ve got the basis of a great program,” she said. “When the program came out there were a lot of naysayers ... but I’ve been saying, ‘just relax, people. This is something new for the government.’ “

However, Gilbert — who also sits on the board of the National Angel Capital Organization — said she’s concerned that the government hasn’t done enough to educate people, particularly investors, about the program. She added SeedUps Canada is helping to host a networking event at the end of June aimed at introducing investors to some of the companies eligible for the tax credit.

Education has to be a focus, one I wish the government would take a more prominent stand in.

“I talk to investors all the time who don’t even know there’s an investor tax credit in Alberta yet,” she said. “Education has to be a focus, one I wish the government would take a more prominent stand in.”

Economic Development Minister Deron Bilous acknowledged his department is currently dealing with a backlog as it tries to process applications from small and mid-sized companies.

“You can imagine all the companies that were waiting at the starting line for us to announce this, and as soon as the gun went off, you’ve got a ton of companies that are applying,” Bilous said.

However, he emphasized the government needs to take the time to go over each application and ensure the companies applying are truly Alberta-based companies that meet the criteria of the program.

“These are safety measures that are supporting Alberta businesses,” Bilous said. “We need to ensure that predominantly they have Alberta employees and their investments are here in the province.”

Bilous added that the initiative is a three-year program, worth $90 million, and tax credits will be awarded on a first-come, firstserve basis. That means that if funding isn’t used or issued this year, it will be available next year.