Canadian Federal government eliminate Section 116, pertaining to venture capital and private equity industry, removes tax barriers, welcoming the flow of capital across Canada’s border. Its removal provides an important signal to international investors that Canada welcomes their contributions to growing companies. Canada is open for business!

This gives Canadian companies across the country tax law changes to give them the advantage to compete on the global stage. The government has significantly reduced administrative and, in some cases, economic barriers to international investment in Canadian-based innovation and technology. These changes in tax legislation are among the most significant changes to capital gains taxation since the introduction of taxation of capital gains in 1972. This change puts Canada at the top of the list of places to invest globally.

Withholding and Section 116 certificate process — The majority of foreign VCs are not subject to Canadian tax when they sell an investment. However, they may face a delay of many months to work through the Section 116 tax clearance process until funds can freely flow to them. Many foreign VCs are structured such that each of the investors in the VC — sometimes hundreds or even thousands — is subject to this clearance process as if they held the investment directly. This delay results in lower returns and frequently causes direct financial loss to investors.

This change means Canada is s more welcoming environment for international investors.

The removal of the Section 116 tax barrier is seen as a tax master stroke by the Canadian government enabling Canada’s emerging technology companies to access deep pools of international capital and the vast international customer markets to which those pools are connected. There are predictions that over time this move will help propel Canada’s extraordinary technology into global industry leadership and will likely be viewed in the future as a defining moment for the Harper government in Canadian innovation. This amendment will have an immediate, positive and direct impact on Canada’s ability to grow the Canadian technology and innovation industry.
Go Canada Go!


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