NLIS 4
December 11, 2001
(Industry, Trade and Rural Development)

 

Changes give business investment program
"Double Edge" advantage

Amendments proposed by government to the Economic Diversification and Growth Enterprises (EDGE) Act will make the EDGE program more attractive and competitive as a strategic business investment and international marketing tool for the province, and will offer enhanced incentives for companies that establish or expand in rural areas.

"The new legislation will make Newfoundland and Labrador the most competitive jurisdiction in Canada for encouraging new business investment. No other province offers the �double EDGE' advantage that we plan on offering," says Beaton Tulk, Minister of Industry, Trade and Rural Development.

"EDGE has had positive results in encouraging new investment and creating new jobs. The changes we are proposing will take this internationally recognized program to a higher level with even greater results, especially for rural Newfoundland and Labrador," he said.

The proposed amendments include a new 50 per cent rebate on federal corporate income tax for EDGE-designated companies. This rebate, along with the existing 100 per cent rebate on provincial corporate income tax, will give the program its �double EDGE'. "This will be a unique business investment incentive in the entire country," said Minister Tulk.

The amended legislation will also increase the tax holiday period for new EDGE-designated companies that establish or expand outside the Northeast Avalon region to 15 years from 10 years, fulfilling a commitment government made in its Renewal Strategy for Jobs and Growth to enhance EDGE benefits for rural areas as a means of stimulating the rural economy. Those municipalities located outside the Northeast Avalon that currently participate in the EDGE program and provide municipal tax relief will have the option of continuing with the existing tax holiday of 10 years or extending it to 15 years in accordance with the new legislative provisions.

A bill to amend the existing EDGE legislation will get second reading in the House of Assembly today, December 11. The changes will apply to new EDGE-designated companies � not those companies that already have EDGE status.

"Government is acting on its Jobs and Growth Renewal Strategy by ensuring that Newfoundland and Labrador remains a highly attractive jurisdiction in which to invest and do business � both for local entrepreneurs and external investors who are looking for new places to invest their money � with a particular emphasis on the needs of rural areas," said Minister Tulk.

The minister also emphasized that the EDGE program will remain a performance-based program where businesses are rewarded with financial incentives after they invest their own money, create new jobs and produce real results. "Anyone wanting or expecting cash up-front need not apply," noted the minister. "The goal of EDGE is to appeal to and reward companies that have solid long-term growth plans, while protecting the taxpayers' interest at the same time."

To ensure these objectives are achieved, the legislation will be amended to clarify that the financial benefits available under EDGE will flow to new EDGE companies after they meet the minimum eligibility thresholds set out in the legislation � the creation of at least 10 permanent jobs and $300,000 in new investment (or $500,000 in incremental sales). Companies will also be required to maintain these thresholds in order to continue to draw EDGE incentives. Under the current legislation, companies can draw EDGE benefits if they demonstrate the potential to meet the thresholds over a reasonable period of time. The strengthening of the legislation along these lines is designed to ensure that the taxpayers' interest is fully protected in keeping with the spirit and intent of the Act.

Minister Tulk also noted that programs such as EDGE are a fiscally responsible approach to growing the economy and creating new jobs. "Under the EDGE Act, a company will only be granted EDGE status in circumstances where there is a positive overall gain to the provincial economy. In other words, EDGE cannot be granted unless the benefits to the provincial economy and the provincial treasury, through increased tax revenues such as personal income taxes and other economic spin-offs, exceed the costs of the incentives to be granted. This means that the program is effectively self-financing and that the EDGE incentives are not paid for by the existing local business community or the general taxpayer," he said.

There are currently 72 companies with EDGE status. These companies have created more than 1,600 new jobs to date and have invested approximately $190 million in the province. "That's a good return for the total $5.1 million in incentives that all EDGE companies have received over the last six years. The international investment community has also acknowledged the value of EDGE by awarding it the Silver Medal in the 2000 Economic Development Achievement Awards sponsored by the U.S.-based "Business Facilitation" publication. This is very positive, but we need to recognize that national and international competition for new business investment is increasing every year. With our enhanced "double EDGE" program, we are honing EDGE as a strategic business investment and marketing tool to ensure we remain ahead of the competition and become even more aggressive in encouraging and attracting new investment in all areas of the province," said Minister Tulk. 

Minister Tulk said government is taking concrete steps in fulfilling commitments made in its Renewal Strategy for Jobs and Growth to create the right environment for stimulating business growth and job creation in all areas of the province, with a more competitive EDGE program being just one of many initiatives taken by government to date to achieve that goal. 

Media contact: Josephine Cheeseman, Communications, (709) 729-4570.




BACKGROUNDER

Economic Diversification and Growth Enterprises Program

  • The Economic Diversification and Growth Enterprises (EDGE) Program was established in 1995 as a strategic economic development and marketing tool to encourage new business investment in the province to help diversify the economy and stimulate new private sector job creation.

  • Companies seeking EDGE status can be either new businesses or existing businesses looking to expand in the province, where a minimum of $300,000 in new capital investment or $500,000 in incremental annual sales are attainable, and where there is the potential to create and maintain a minimum of 10 new permanent jobs. Companies seeking EDGE status must also demonstrate that, in the absence of the EDGE incentives, the new business activity would not take place in the province or at the time when it is proposed to do so. The new business activity must also result in a substantial net economic benefit to the province. Finally, EDGE incentives must not give a company a direct competitive advantage over other businesses already established in the province.

  • The EDGE program is available to local companies that want to expand, local entrepreneurs who are interested in new business start-ups, and external companies and investors who wish to set up a new enterprise in the province.

  • The incentives originally established under EDGE in 1995 included: (i) a full 10-year tax holiday from provincial Corporate Income Tax, the provincial health and post-secondary education (payroll) tax, the provincial Retail Sales Tax (RST), and municipal property and/or business taxes in participating municipalities, followed by a five-year phase-in of all of these taxes; (ii) a $2,000 start-up grant for each new job created; (iii) access to unserviced Crown land for a $1 nominal fee; and, (iv) access to a government "regulatory" facilitator.

  • Forty-six (46) municipalities currently participate in the EDGE program (see accompanying list).

  • The RST exemption became largely redundant on April 1, 1997 when the RST and the federal Goods and Services Tax (GST) were combined to form the Harmonized Sales Tax (HST), with full input tax credits provided to all business enterprises under the HST.

  • The $2,000 per job start-up grant was eliminated on April 1, 1997, as part of government's overall "program review" initiative.

  • There are currently 72 companies with EDGE status, 33 (46%) of which are located in the Northeast Avalon region and 39 (54%) located outside the Northeast Avalon. Sixty-two (62) of these EDGE corporations have been new start-up companies, with the remaining ten (10) being expansions of existing firms. Twenty (20) of the 72 EDGE companies originated from outside the province and nine (9) were a combination of external and local investors. The others � 43 in total � are local companies.

  • These 72 EDGE companies have created over 1,600 new jobs to date and have invested over $190 million in the province.

  • An additional 43 companies had been granted EDGE status, but that status was subsequently revoked as the companies concerned did not fulfill their obligations under the EDGE Act. Twenty-three (23) of these companies never commenced operations in the province for a variety of reasons, and hence did not obtain any EDGE incentives or benefits. Nineteen (19) companies started operations but subsequently ceased operating. One other company declined EDGE status due to the conditions attached by government. The EDGE benefits that accrued to these companies were limited to the time period in which the companies actually operated.

  • The EDGE program is designed as a performance-based incentive program � meaning that a company must invest its own money, perform successfully by earning profits, and create new jobs before it gets the financial incentives under the EDGE Act. Up-front grants are not provided. The intent of EDGE is to reward companies that have solid long-term growth plans. This ensures that the taxpayers' money is fully protected.

  • Furthermore, EDGE status is only provided to a company where there is a positive overall gain to the provincial economy, including the provincial treasury, through increased tax revenues such as personal income taxes and other economic spin-offs that result from the incremental business activity generated by an EDGE company.

  • A total of $5.1 million in EDGE financial benefits have been granted to EDGE companies since 1995. This equates to approximately $3,000 for each new job that remains in place today. Over one-half of this cost relates to the originally established $2,000 start-up grant and RST rebates, both of which no longer exist.

  • National and international competition for business investment has increased significantly since EDGE was first introduced in 1995. EDGE was on the leading edge at that time � it succeeded in setting Newfoundland and Labrador apart from other jurisdictions with its innovative approach and incentives. 

  • EDGE remains an attractive business investment tool in the marketplace. It received international recognition in 2000 by winning the Silver Award (second place) in the Economic Development Achievement Awards sponsored by the U.S.-based "Business Facilitation" publication (see accompanying news release dated January 11, 2001).

  • Notwithstanding this, EDGE is now over six years old and the province cannot afford to become complacent and stand still while the competition catches up and possibly surpasses Newfoundland and Labrador in an ever increasing competitive environment for new business investment. The province needs to keep ahead of the competition, in a fiscally responsible manner, and become even more aggressive over time to stimulate and encourage new business investment in all areas of the province.

  • The Renewal Strategy for Jobs and Growth, released in March 2001, emphasized the importance of creating and maintaining a positive overall environment for business investment and job creation, especially in rural Newfoundland and Labrador, and committed to new measures to achieve these goals. Among these included a strengthened EDGE program "to make Newfoundland and Labrador the most competitive location in Canada for encouraging new business investment vis-a-vis our overall corporate tax regime" and "to meet the particular challenge of attracting new investment to rural Newfoundland and Labrador".

  • The new legislation achieves this by providing an additional incentive to encourage business investment and create new jobs in rural areas of the province, where the need for economic stimulus is greater than on the Northeast Avalon. This will be accomplished by increasing the period of the tax "holiday" to 15 years from 10 years for businesses that establish or expand outside the Northeast Avalon region. 

  • The new legislation will also provide for a 50% rebate on federal corporate income tax. This will be unique in Canada and will provide Newfoundland and Labrador with a strategic marketing advantage in keeping investment dollars at home and in attracting new investment from national and international sources. The "double EDGE" advantage will ensure that the province keeps ahead of the competition for new investment capital and the new jobs that come with it.

  • Effective January 1, 2002, federal corporate income taxes will range from 26% (general corporate rate) to 13% (small business rate). The "double EDGE" incentive will, therefore, give companies up to an additional 13% tax incentive to invest in Newfoundland and Labrador, on top of full provincial corporate and "payroll" tax rebates. The combined relief on federal and provincial corporate income taxes, excluding what municipalities may offer, will now be as high as 27%, bringing the corporate income tax burden down for general businesses that qualify for EDGE from 40% to 13% (see accompanying fact sheet). 

  • The legislation will also clarify and provide certainty that, in order to receive the new EDGE incentives, an EDGE company must reach and maintain the eligibility criteria and thresholds specified in the Act unless extenuating temporary circumstances exist for which Cabinet may give a temporary reprieve and continue the benefits.
  • The enhanced EDGE incentives will apply only to newly designated EDGE corporations that make application after the legislation comes into force on January 1, 2002. Existing EDGE designated companies will not be able to draw the enhanced incentives provided for in the new legislation.

Frequently asked questions

Q What constitutes the Northeast Avalon?
A It is essentially the St. John's metro area. It includes Conception Bay South, Mount Pearl, Paradise, St. John's and environs. This is the same dividing line used in the Venture Capital Tax Credit Program that also provides for enhanced incentives outside the NE Avalon area.


Q Why are there now two different tax "holiday" periods under the EDGE Program?
A The new legislation enhances EDGE benefits for rural areas by increasing the tax holiday period for businesses that establish or expand outside the North East Avalon area from 10 years to 15 years. The two-tier structure will provide an additional incentive to attract business investment to rural areas of the province, where the need for economic stimulus is greater than in the St. John's metro area. This need was highlighted repeatedly in the jobs and growth consultations.


Q Why is government offering a rebate on federal corporate income tax?
A To enhance the attractiveness of the EDGE program to potential investors to ensure Newfoundland and Labrador remains at the forefront of the competition in encouraging new business investment within the province. This will be a unique incentive in all of Canada and will therefore set Newfoundland and Labrador apart from all other provinces in what is becoming an ever increasing competitive market for new business investment.


Q What about the needs of the local business community in general?
A Government is sensitive to the need to create and maintain a competitive environment for all businesses in the province. This is a central theme of government's Renewal Strategy for Jobs and Growth. Government has been aggressive on this front for many years - as outlined in an accompanying fact sheet - and intends to continue on this path. At the same time, however, we also need to develop innovative tools to encourage and reward companies that will invest new money in our province and create new jobs. This is what EDGE is all about. Also, EDGE remains fully available to local companies interested in expanding or to local entrepreneurs interested in starting up a new business. Government's objective in EDGE is to encourage new investment from all sources - local, national and international. 


Q What has the EDGE program cost the province to date?
A Financial incentives of $5.1 million have been provided under EDGE since the program was established in 1995. Those EDGE companies that are currently active (72 in total) have created over 1,600 new jobs and invested over $190 million in the province. This equates to approximately $3,000 for each new job created thus far. This is a good return on the taxpayer's investment.

It is also important to note that EDGE is a performance-based program. The financial benefits available to EDGE companies are only available after the company creates new jobs and generates real results. Up-front grants are not provided. This ensures the taxpayers' money is fully protected.


Q How successful has EDGE been? 
A EDGE has been quite successful, not only as a strategic marketing tool to promote the province as a good place to do business, but also in encouraging local and external investment that would not have otherwise take place in the province. The 72 active EDGE companies have created over 1,600 new jobs to date and have invested over $190 million in the province. EDGE has also received international recognition in winning the Silver Award in 2000 in the Economic Development Achievement Awards sponsored by the US based "Business Facilitation" publication (see accompanying news release dated January 11, 2001).


Q Why not scrap EDGE in favour of broad-based corporate tax reforms?
A Corporate taxes have been reduced significantly on a general business front, as well as for manufacturing enterprises and small business, over many years. Today, we have among the lowest corporate taxes in Canada. The province does not have the fiscal ability to make further substantial reductions to these taxes at this time. Also, EDGE is working as intended and represents a more targeted approach to encouraging new business investment in the province.


Q. How much will the average company actually benefit from the new EDGE incentives?
A It will depend on the classification of a particular company for tax purposes (i.e., whether it falls into the small business category, manufacturing category or general business category) and the actual level of taxable income a company generates. The enhanced benefits are significant, however, as shown in the accompanying fact sheet.


Q. Will companies that currently have EDGE status be entitled to the new benefits?
A No. The intent is to encourage new investment on a go forward basis � not to provide additional financial benefits for business activity that already exists or which is in the process of being established.


Q How much will an enhanced EDGE program cost taxpayers?
A The cost of the enhanced EDGE program will be a function of the take up on the program and the types of companies that apply is difficult to project what the costs will be over time. However, EDGE is designed to be self financing and hence the general taxpayer and existing businesses do not bear the costs.


NLIS 1
January 11, 2001
(Industry, Trade and Technology) 
Department honoured for excellence in economic development

American magazine Business Facilities announced today that the Department of Industry, Trade and Technology has been awarded the second place, silver award in the Regional Economic Development Incentive Program Category of its 2000 Economic Development Achievement Awards Program.

Business Facilities is a monthly magazine written and edited for top-level executives involved in the selection of sites for their company''s facilities. The audience spans all industry and service sectors. Using a three-tiered scoring system focused on innovation, effectiveness, and pro-business impact, the editors of the magazine, along with a distinguished panel of site selectors, judged the entries. The judges, who will also serve as the magazine''s editorial advisory board for 2001, are each site selectors with varying amounts of experience in choosing new sites for their corporations.

Business Facilities awarded the department second place based on the judging of its Economic Diversification and Growth Enterprises (EDGE) program, which was initiated in 1995 in order to make the province one of the most attractive investment locations in North America.

"I am very pleased that the Department of Industry, Trade and Technology has been recognized for this prestigious award by Business Facilities magazine," said Industry, Trade and Technology Minister Sandra C. Kelly. "This is a positive affirmation that initiatives such as our EDGE program are effective in the international business community."

The EDGE program has attracted a wide spectrum of businesses to the province. Since it was established, close to 70 new companies have started or expanded operations, creating approximately 1,500 new jobs. In addition, more than $74 million has been invested to date.

Business Facilities noted that while such programs are common across the U.S., Newfoundland and Labrador is currently the only Canadian province to offer such incentives.

Donna Clapp, editor-in-chief of Business Facilities, summed up why this program is a winner by stating: "The EDGE program is very innovative by Canadian standards, and as such, it goes a long way in helping the province to compete against American states economically to attract expansions. I was impressed with the number of new companies that have diversified the economy in the province and I was also happy that this program clearly includes incentives for expansion of existing businesses in the province as well as new businesses. This helps to create a well-rounded, pro-business atmosphere."

Companies meeting EDGE criteria are eligible for a 10-year tax break from provincial corporate income tax and provincial payroll tax, followed by a five year phase-in of these taxes, unserviced Crown land for a nominal fee, and access to a facilitator who will help obtain the required permits and licences associated with start up or expansion. In addition, many of the province''s municipalities participate in the EDGE program and offer similar tax holidays from property and/or business tax.

The judges for the awards program were: Doug Aldrich, Global Manager of Laboratory Facilities, Dow Corning Corp.; Dr. Barry Hagan, Managing Director, ICL-Microsoft; Doug Noonan, Director of Corporate Real Estate & Facilities, Reebok Int.; Dana Olson, COO, ACI Telecentric; and Michael Stephani, CEO and President, Exotrope Inc.

For more information on the awards or Business Facilities, please call (800) 524-0337.

Media contact: Jacqueline Simon, Communications, (709) 729-0050.
Beth Sicignano, Marketing Director, (732) 842-7433 (ext. 222).



Tax Impact on Businesses Qualifying for EDGE1

Provincial3
"Payroll" Corporate Income Tax
Tax Nfld. & Lab Canada4 Combined
Small Business Enterprises 2
Without EDGE 2% 5% 13.1% 18.1%
With EDGE before proposed  0% 0% 13.1% 13.1%
amendments
With "Double EDGE" after proposed  0% 0% 6.55% 6.55%
amendments
Manufacturing Business Enterprises
Without EDGE 2% 5% 22.1% 27.1%
With EDGE before proposed  0% 0% 22.1% 22.1%
amendments
With "Double EDGE" after proposed  0% 0% 11.05% 11.05%
amendments
General Business Enterprises
Without EDGE 2% 14% 26.1% 40.1%
With EDGE before proposed  0% 0% 26.1% 26.1%
amendments
With "Double EDGE" after proposed 0% 0% 13.05% 13.05%
 amendments
  1. Exclusive of qualifying municipal property and/or business tax relief.
  2. A small business enterprise is defined as having less than $200,000 taxable income annually.
  3. Payroll tax is applied on company payrolls of $500,000 or greater.
  4. Federal corporate tax rates are as of January 1, 2002


2001 12 11                          11:30 a.m. 


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