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Government Incentives for Startups in British Columbia

One factor that provides incentives is the involvement of the BC government in supporting startups.

Global Influencer

Global Influencer
Global Influencer

Vancouver is the best city in the world in which to start a new business according to PeoplePerHour, the UK-based freelance marketplace business. They looked at a variety of factors in order to compile the Startup City Index, including quality of life, cost of living, the ease of starting a business, cost of office space and government support.

Startup capital seems to be readily available to businesses in British Columbia (BC) that have the usual criteria we look for in startup viability and sustainability namely a great idea with good management, a scalable business, sales, global reach etc. In BC, there is a huge supply of startups looking for growth capital while venture capital funds have declined, so every incentive to help the investor make a decision where to invest is a valuable resource.

One factor that provides incentives is the involvement of the government in supporting startups. Why should government support business? It allows for economic growth in general, provides jobs and spearheads ancillary business opportunities.

BC has always offered financial and strategic support to the entrepreneur. The Provincial government’s mandate to entrepreneurs is clear, “to support small business, improve investment readiness and encourage economic development and competitiveness through the development of programs, initiatives, publications and resources designed to break down barriers to doing business in British Columbia.”

Small Business BC is British Columbia’s premiere resource centre for knowledge-based business products and services supported by funds from Western Economic Diversification Canada (Federal) and the Ministry of Jobs, Trade and Technology (Provincial).

Besides information sharing and programming the government makes it easier for investors to support startups. Canada Revenue Agency has always had tax incentives for investing in a business but BC has added a further incentive to exploit the success of high tech startups in particular, in BC that are riding the explosion of newco startups.

One such program, is the 30% Tax Credit for Residents of British Columbia with Investments in a registered Eligible Business Corporation (EBC).

The Province of British Columbia recognizes the fundamental role of small, B.C.-based business in diversifying and strengthening the economy and in creating new jobs. As one of the hurdles to early success for entrepreneurs is availability of venture capital, the B.C. Ministry of International Trade created the Venture Capital Program (VCP) to help foster and support innovation and economic growth.

Residents of British Columbia who make equity capital investments in registered Eligible Business Corporations (EBCs) participating in the VCP, can receive up to a 30% refundable tax credit from the Province of B.C on the full amount invested [up to a maximum rebate of $60,000 per individual per tax year. There is no limit for corporate investors.

How Does It Work?

Each tax year, a limited budget of available Provincial tax credits is allocated to the Venture Capital Program. Upon receiving an equity capital investment from a qualified resident of British Columbia, an EBC registered corporation must apply on behalf of the investor to the Provincial Government for tax credit certificates in the amount equal to 30% paid for the common shares in the EBC business.

As the Venture Capital Program operates on a “first-come-first-served” basis, tax credit certificates are only issued as long as the limited budget for credits remains available.

For applications made while tax credits are available, certificates in the name of the investor are sent to the submitting registered corporation. It is the responsibility of the receiving corporation to ensure certificates are distributed to their equity investors.

Investors who are the recipients of the tax credit certificates can submit them with their B.C. Provincial tax return for that same calendar year. Monies will be issued to the certificate holder regardless of taxes due, or results of the registered EBC.

What Corporations Qualify for EBC Designation?

Corporations must apply to the B.C. Ministry of International Trade Venture Capital Program for acceptance and designation as an Eligible Business Corporation. Among other requirements, corporations must:

  • be incorporated under B.C.’s Business Corporations Act, or Canada’s Business Corporations Act, or be incorporated in another province and registered to carry on business in B.C.;
  • maintain a permanent establishment in B.C. with at least 80% of its’ assets in B.C.
  • be substantially engaged in B.C. in one or more of the 6 qualifying activities:

1. Manufacturing or processing, including services directly associated with the export of value-added goods produced in British Columbia

2. Destination Tourism Resort

3. Research and development of proprietary technology

4. Development of interactive digital new media product

5. Community diversification outside of the Lower Mainland and the Capital Region

6. Clean Technology

There are more restrictions for this investment including a proviso that the investor cannot transfer, or sell the shares in the company for a minimum of five years, still reasonable for the long-term investor.

A lessor known government investment program is the Employee Share Ownership Plan (EIA). This provincial program offers employees of BC corporations a 20% tax credit for investing in their employer’s business. This program allows a return of up to $2000 per year on taxes but is locked in for a three-year period. How does this benefit the startup? It increases employee engagement, recruitment and retention while supplying the startup with a built-in investor.

Certainly programs like these offer an incentive for investors. While the investment is not guaranteed the value of being able to take between 20-30% of an investment off your taxes could be the difference of investing in a new startup – or not!

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