Cancel elimination of labour-sponsored venture capital tax credits, says NUPGE

April 4, 2013

The Right Honourable Stephen Harper, P.C., M.P.

Office of the Prime Minister

80 Wellington Street

Ottawa, ON K1A 0A2

The Honourable James M. Flaherty, P.C., M.P.

Department of Finance Canada

140 O'Connor Street

Ottawa, Ontario K1A 0G5

Dear Prime Minister Harper & Minister Flaherty,

I am writing to urge you to withdraw the proposal in the 2013 federal budget to eliminate the tax credit for investments in labour-sponsored venture capital corporations (LSVCCs) and to conduct consultations before taking further action in this area.

LSVCCs have had a significant economic impact in Canada. In 2009, near the start of the recession, LSVCCs and retail funds accounted for almost a quarter of all venture capital investment.

For companies trying to transform research into commercially successful products, LSVCCs have been a crucial source of capital. Blackberry Inc. may be the best known recipient of LSVCC support, but there are countless others.

The Working Opportunity Fund alone has invested over $585 million in British Columbia businesses since 1992, creating over 10,000 jobs for British Columbia residents. Its support for companies developing new technology is helping diversify the British Columbia economy.

Nor is the Working Opportunity Fund an isolated example. Because LSVCCs give people a chance to invest in their own communities, much of the investment by labour-sponsored venture capital corporations has gone to regions where obtaining venture capital has been a challenge.

For governments of all political stripes, how to encourage economic growth in all parts of the country has been a challenge. LSVCCs are helping provide an effective market-based solution to that problem.

There is serious concern that the elimination of the tax credit for investments in LSVCCs will affect the supply of venture capital for small and medium sized businesses.

Indeed, Canada's Venture Capital and Private Equity Association (CVCA) has raised fears that your government's move to eliminate the tax credit “will impede the goal of long-term sustainability for the venture capital industry.”

The tone taken by both the CVCA and spokespeople for LSVCCs suggests your government did not consult with any stakeholders about how cancelling the tax credit will impact access to venture capital for small and medium sized businesses.

Instead of proceeding with a measure that will add to Canada’s economic problems, I urge you to cancel the proposed elimination of the tax credit for investments in LSVCCs and hold meaningful consultations with stakeholders.

In addition, I would like to reiterate my call that your government establish a Royal Commission to undertake a comprehensive review of the tax system and make recommendations to ensure its fairness and progressivity, and to reduce its complexity.

Sincerely,

James Clancy

National President