CEO of Athennian Adrian Camara works with his staff at his head office in Calgary, Alberta, July 31, 2019.TODD KOROL/The Globe and Mail
Alberta’s government has hit pause on a tax credit meant to boost investment in the province’s small businesses, a move some entrepreneurs and angel investors say could discourage innovation and growth.
The Alberta Investor Tax Credit (AITC) offers a 30-per-cent tax rebate on the amount of equity capital someone invests in an eligible Alberta small business. The business must research, develop or commercialize a new technology or be involved in media production or tourism.
The AITC was introduced by the former NDP government in January, 2017, with $90-million in tax credits over two years. It reduces risk for investors and encourages investment in sectors beyond oil and gas, entrepreneurs say.
Alberta’s provincial government says on the AITC webpage that applications are open and $6-million in tax credits can still be claimed. But Adrian Camara, chief executive of legal-software company Athennian, found out it was on hold while trying to get tax credits for his investors in July.
His company was certified as an Eligible Business Corporation through the province, which means its investors could receive the tax credit, but when he tried to submit investment offers he’d received, a program officer with the Ministry of Economic Development, Trade and Tourism told him the program was on pause.
In an e-mail shared with The Globe and Mail, the administrator told Mr. Camara the provincial government is reassessing the interim budget for all of its programs, and that staff administering the AITC were waiting for an official decision before approving investing tax credits.
“They’ve essentially pulled the rug out from under everybody’s feet," Mr. Camara said. “It’s caused a ton of confusion and a lot of uncertainty.”
Alberta’s government changed after the April election, with Premier Jason Kenney’s United Conservative Party taking office. The government has not yet brought forward a provincial budget, and there’s uncertainty about whether provincial programs in sectors from education to innovation will continue.
Justin Brattinga, press secretary for the Ministry of Economic Development, Trade and Tourism, confirmed the government is “reviewing the Alberta Investor Tax Credit to ensure that it is an effective use of Albertans’ tax dollars.”
The ministry is trying to determine whether the AITC meets the new government’s mandate of “job creation and economic renewal," Mr. Brattinga added.
Franco Terrazzano, Alberta director of the Canadian Taxpayers Federation, calls the tax credit “corporate welfare.”
“The best way [to grow the economy] is to not focus on niche programs, but to just cut taxes for all business,” he said.
Mr. Kenney has dropped Alberta’s corporate tax rate to 11 per cent from 12 per cent – making it the lowest in the country – and promised to bring it down to 8 per cent by 2022. The small business rate is just 2 per cent.
However, for Mr. Camara, the pausing of the AITC has caused his company difficulties, including seeing one investment fall through. James Lochrie, co-founder of Wave, an accounting software company recently bought by H&R Block, planned to invest about $200,000 in Mr. Camara’s company, but decided not to because of the tax-credit uncertainty.
Mr. Camara said the future of his company is still solid, and that only his most recent round of fundraising has been affected. But he has slashed his hiring forecast and is disappointed he won’t be able to grow as quickly. Plus, he’s thinking of relocating its headquarters to Toronto.
“There aren’t a million reasons to build a technology company in Alberta. There’s actually a pretty short list of reasons why you would," Mr. Camara said. “And they just took a big one away.”
Other companies could be worse off, though, said Sandi Gilbert, CEO of Intergen and chair of the National Angel Capital Organization.
“The challenge is there could literally be companies which have already taken investment dollars from investors and find out credits may not be available and investors say I want my money back,” she said. “As soon as investors get wind there might not be any credits coming, they put a pause on their investing."
The provincial government has put other business tax credits and funding programs on hold, too. The Capital Investment Tax Credit, which gives businesses in certain sectors 10 per cent back for up to $5-million that they spend on new equipment, has a note on its web page saying it’s “closed” and that applications are not currently being accepted.
Alberta also put entrepreneurial investment funding programs through Alberta Innovates on hold. The provincially run research and development agency is not currently accepting applications for its grants.
Mr. Lochrie thinks this could have a negative impact on the health of Alberta’s business community as it tries to diversify outside of natural resources.
“As a citizen, as an innovator … not focusing on this area is troubling,” he said. “[The UCP says] ‘we’re open for business,’ but we’re open for business for oil.”
A new budget, which could bring answers about whether these programs and tax credits for Alberta small businesses will continue, is expected in the fall.