Overhaul coming to equity tax credit as N.S. seeks to spur investment
Successive government reports have called for at least a doubling of the investment credit
The Nova Scotia government has promised to overhaul a key tax credit for investors looking to put their money into startups or company expansions.
The province's equity tax credit is currently the least generous of all the similar tax breaks in Atlantic Canada and has been for years, despite two high-profile government reports recommending changes.
In a 2010 report filed to the former NDP government, Donald Savoie, an expert in public administration and regional economic development, recommended the $50,000 limit on the amount eligible for the credit be increased to $250,000.
And then-consultant Laurel Broten, who now heads Nova Scotia Business Incorporated, filed a report in late 2014 calling for a more modest increase in the maximum eligible investment, suggesting it be doubled to $100,000. Broten also recommended the money go only "to strategically defined high-growth sectors such as information technology and clean technology."
The equity tax credit is meant to reward angel investors for putting their money into startups, or companies for reinvesting in their businesses.
"Advantages for the province would be to focus in on investments that ordinarily would not have taken place without the existence of this tax credit," said Paul Davies, a director with the Finance Department.
"The most important thing from a tax policy perspective is to ensure you're rewarding that investment, not investment that would have taken place anyways."
Bigger breaks elsewhere
Right now, investors are getting a bigger equity tax break if they're spending their money anywhere else in the Atlantic region.
New Brunswick offers a 50 per cent return on investments up to $250,000.
In P.E.I., it's 35 per cent with a $100,000 limit, while Newfoundland's maximum is $250,000, with a return of 20 per cent for investments made in St John's and 35 per cent everywhere else in the province.
That makes Nova Scotia's 35 per cent on a maximum of $50,000 much less attractive.
"In the venture-capital business, they can take their money virtually anywhere in the world and it is very competitive," said Davies. "Not just in Atlantic Canada. You know, in the U.S., in the U.K., [there's] much higher thresholds, a much more generous approach to the investments."
In her budget address to the legislature earlier this week, Finance Minister Karen Casey only hinted at the coming changes.
"To further improve the business climate in the province, we will introduce a new innovation equity tax credit," she said. "Beginning in 2019, it will be more narrowly focused and have a threshold similar to our neighbours."
Davies is leaving it to his political bosses to say what specific changes are coming, but said more generous payouts to companies willing to invest in the province makes sense.
"It's all about encouraging more economic growth," he said.
"Successful investments will spur on businesses to create profits, to create jobs which, in the end will turn into more revenue for the province from income tax then you would get if there was no investment."