See original Entrevestor article here
While applauding recent investment tax credit reforms in Nova Scotia, the province’s life sciences association wants further improvements, including offering the credits to investors outside the region.
BioNova, the group that supports the development of health, life sciences and biotech companies in Nova Scotia, has teamed up with the consulting group Grant Thornton and the law firm Cox & Palmer to produce a new paper on Innovation Equity Tax Credits, or IETCs. They released the report last week at the annual BioPort conference in Halifax.
Most of the report’s 13 recommendations are technical, but No. 6 strikes at the heart of an ongoing debate in the startup community about investment tax credits. These credits are now only available to Nova Scotians, but BioNova and its co-authors want them offered to investors living elsewhere to increase the money going into high-growth companies.
“Limiting it to Nova Scotia restricts investors and, most importantly, limits access to significant pools of capital,” says the report. “Regardless of the method, expanding the program as suggested in this paper to investors outside of Nova Scotia would likely be the biggest benefit to Nova Scotia companies in accessing funds.”
Most provinces in Canada and states in the U.S. offer a tax credit to investors in startups and other high-growth businesses as a means of encouraging investment in these businesses. Canadian provincial governments offer them only to residents living in (or businesses based in) their own provinces.
There’s been a long-standing push in Atlantic Canada for the four East Coast provinces to open up their tax credits to one another’s residents, or to offer them to investors anywhere in the world.
The Nova Scotia government in January enhanced its program so its new IETC applies to investments in approved companies of up to $250,000, up from $50,000. Investors can receive a credit equal to 35 percent of their qualifying investment, or 45 percent in the priority sectors of oceans technology and life sciences.
But the credit is still offered only to Nova Scotians. BioNova is recommending the province consider measures in place in such states as Alabama or Arkansas, which offer tax credits to external investors. Some states allow investors to transfer their credits, so an external investor can sell a tax credit to a local taxpayer. Others will offer a tax credit directly to external investors. Minnesota, for example, gives cheques to people outside the state making approved investments in companies based in the state.
The BioNova report said the Nova Scotia government could examine other means to encourage inward investment into the province’s startups, such as a payment to the target company rather than the investor. For example, if an investor in Boston invests $85,000 in a Nova Scotian company, the provincial government could provide the company with a further $15,000 to bring the total amount of capital raised to $100,000.
Peter Hickey, a BioNova board member and the CEO of biotech company Adaptiiv, said the recent changes to the province’s tax credits have already helped innovation-driven companies in the province.
“We were encouraged to see local investors benefit from the new changes,” he said in the report. “We truly believe that these are the types of significant improvements that are needed to ensure the success of technology-based businesses like ours, so we look forward to this trend continuing.”