Funding Canadian Innovation: Pushback on Capital Gains, OSC exemptions drop, and more

on May 14, 2024

It’s been a contentious few weeks for members of the Canadian tech ecosystem, as leaders across the country continue to decry key facets of Budget 2024 that dropped back in April.

Specifically, the Council of Canadian Innovators (CCI) released their second open letter to Finance Minister Chrystia Freeland asking for a walk-back on plans to increase the capital gains inclusion rate from 50 percent to 66.7 percent. 

With signatories including the Canadian Chamber of commerce, the Canadian Federation for Independent Business (CFIB), the Canadian Venture Capital and Private Equity Association (CVCA) and more, a critical mass of voices are coming out against tax changes that are deemed “shortsighted” by the group. 

While the new capital gains inclusion rate—which is currently on track to start going into effect June 25—is estimated to raise $19.4 billion CAD in revenue over a five-year period, the adjusted rate “will limit opportunities for all generations and make Canada a less competitive, and less innovative nation,” the CCI’s statement reads. 

Despite estimates that the rate changes will only immediately impact roughly 40,000 individuals should it launch on schedule next month, the downstream impact on job creation could be substantial. As the CCI response explains, this new tax system will flat-out make investing in new Canadian businesses less attractive, full-stop. 

“With higher capital gains tax, VC funds are now looking at smaller returns after tax, which means less funding or smaller shares left over for founders,” Laurent Carbonneau, CCI Director of Policy and Research, explains in their latest statement. 

These latest pleas build on an original open letter published back in April contesting the capital gains rate change in April, which to date has gained more than 2000 signatures. 

About: Funding Canadian Innovation: Pushback on Capital Gains, OSC exemptions drop, and more

Provincial funding measures announced in Ontario

While it remains to be seen whether the federal budget will be modified ahead of key deadlines in June, the Ontario Securities Commission (OSC) has introduced initiatives for the province’s TestLab with the aim of increasing access to capital for new startups. 

Specifically, the OSC has outlined new Dealer exemptions that will allow businesses to fundraise leveraging tools like crowdfunding portals or angel investor groups without having to register as a Dealer with the Ontario government. This would enable qualified businesses to collect upwards of $3 million CAD in capital from designated not-for-profit sources to support their business with fewer hoops to jump through.

The temporary measures—which will be in effect until October 2025—target innovative, early-stage startups with fewer than 100 employees based within Ontario. The measures exclude businesses whose models are based on investments into real estate, mortgages or other business assets (ie. crypto). 

The OSC simultaneously announced similar Dealer registration exemptions for angel groups, enabling them to trade securities in Ontario early-stage startups without needing to register as a dealer. There are unique qualifications for this amendment as well: Investor groups must operate as nonprofits, be based in Ontario, and must have all members be an accredited investor or eligible to be a self-certified investor.

The goal of these measures are to combat a continued lag in venture funding within the greater Toronto area as businesses across Canada—and the world—face a bevy of micro- and macro-economic factors that have made fundraising difficult. 

Stretch your own innovation investments further

While federal and provincial governments are doing all they can to balance their budgets in the face of continued economic upheaval, there are still ways for Canadian businesses of all sizes to capture growth in the current market. 

Key to the measures from the OSC and elsewhere are prioritizing support for businesses that are driving true innovation, which is rooted in research and development (R&D). 

Any businesses that are embarking on R&D initiatives that tackle Technological Uncertainty, follow a Systematic Investigation and embrace Technological Advancement could be able to recoup up to 64 percent of their key innovation investments through SR&ED. 

And while established businesses may be well aware of this key source of funding, the fear of an audit—or even just the time that could go into dealing with the CRA—disincentivizes many eligible companies from even seeking this key source of capital that could make or break their growth trajectory.

With Boast, teams can rest assured that not only will the claims our in-house experts and AI platform compile leave-no-stone-unturned in identifying SR&ED opportunities, but the unmatched detail of our SR&ED reports is pivotal in defending our customer’s claims when audits inevitably happen. 

And with government budgets tighter than ever, the CRA is arguably taking a closer look at every claim and auditing with greater veracity than ever before. Lucky for Boast customers, we take on the complete audit defense for you, with an industry-leading recovery rate of over 90 percent. 

To learn more about how Boast can help you stretch your investments further and help you scale in the current market, talk to an expert today. 

Canadian Funding FAQ

  1. What is the Council of Canadian Innovators (CCI) pushing back against? The CCI has released open letters urging the federal government to walk back plans to increase the capital gains inclusion rate from 50% to 66.7%, which they argue will limit investment and innovation in Canada.
  2. What new funding initiatives were announced in Ontario? The Ontario Securities Commission introduced temporary exemptions allowing early-stage startups to raise up to $3 million from crowdfunding portals and angel investor groups without dealer registration. Angel groups can also invest in startups without registration.
  3. Why were these Ontario funding measures introduced? The goal is to increase access to capital for innovative startups in Ontario, as the province faces a continued lag in venture funding amid economic challenges.
  4. How can the SR&ED program help innovative businesses? Companies driving innovation through R&D work that involves technological advancement can potentially recoup up to 64% of their expenses through the SR&ED tax incentive program.
  5. What advantages does Boast offer for maximizing SR&ED claims? Boast’s AI platform and technical experts thoroughly identify all eligible SR&ED opportunities, while providing robust documentation to successfully defend claims during CRA audits, with over 90% recovery rates.

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