Tech sector in limbo as UCP freezes investor tax credit program

Calgary Herald | Amanda Stephenson | Aug 2, 2019

Calgary - Tech sector in limbo as UCP freezes investor tax credit programEntrepreneurs say a decision by the Kenney government to freeze a tax credit program that helps small businesses access capital could derail the province's technology sector just as it is starting to take off.

Entrepreneurs say a decision by the Kenney government to freeze a tax credit program that helps small businesses access capital could derail Alberta’s technology sector just as it is starting to take off.

A government spokesman confirmed Thursday that applications for the Alberta investor tax credit — which 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 digital animation — are no longer being processed, in spite of the program’s website noting there is still $6.1 million in tax credits available for this year.

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Justin Brattinga, press secretary for Economic Development Minister Tanya Fir, said the future of the investor tax credit — along with other business tax credits introduced by the NDP government, including the capital investment tax credit and the digital media credit — is uncertain. He added the government believes it has already taken steps to make Alberta more competitive for business and investment by cutting the corporate tax rate.

“We are reviewing these programs to ensure that they are an effective and responsible use of taxpayer dollars,” Brattinga said in an email.

However, proponents of the credit say it has proven to be an effective way of getting much-needed venture capital into the hands of new industries, in a province where investment dollars have typically gone to oil and gas. While the program — which was modelled after successful versions in other jurisdictions, including B.C. and Manitoba — encountered some bumps in its early stages, by the end of 2018, the $28.1 million in tax credits that had been approved had leveraged $94 million in investment for small and mid-sized businesses.

“It really encouraged a lot of investors that are traditionally energy investors or real estate investors to invest in technology,” said Adrian Camara, CEO of Calgary-based Athennian, which has developed a cloud software program for use in the legal profession.

Camara said his company, which used the investor tax credit to attract early-stage funding, has grown in just 3½ years to employ 20 full-time staff and now has customers around the globe. But he said he is fearful of what could happen to other startup companies if they no longer have access to the program.

“It’s going to be impossible to raise a seed round into a technology company in Calgary,” Camara said. “I’m very concerned for companies that are coming up behind us, the next stage of companies. I think there is a risk that they (the government) are going to totally deflate momentum in the technology community here.”

Art Smith, vice-president of corporate strategy and business development for Calgary-based startup Virtual Gurus, said the program was an innovative way to “de-risk” investing in Alberta’s tech sector. He said his company is currently in the middle of a funding round and reaching its goal will be more difficult without the tax credit.

“It just makes it more difficult to get investors to write cheques,” Smith said. “If you’re looking at driving investment into private industry here, the AITC was a great way to do it.”

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While the government may think its corporate tax cut is an appropriate replacement for the tax credit programs, Sandi Gilbert, CEO of Calgary-based InterGen and chair of the National Angel Capital Organization, said the reality is that seed-stage tech companies don’t need tax breaks.

“They’re not making any money, so they don’t pay taxes. It’s of no benefit to them,” Gilbert said. “This government campaigned on the fact that they wanted to increase investor confidence, and with this uncertainty (around the tax credit) they are doing the exact opposite.”

In addition to the tax credits, Brattinga said the UCP government has also placed a number of entrepreneur grant programs offered through Alberta Innovates under review.

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