Speaking Notes
Lloyd Matthews
Minister of Finance
Venture Capital Tax Credit Programs
October 30, 2000
Thank you, Minister McLean.
As Minister McLean has indicated, government intends to proceed with two
programs � a new Direct Equity Tax Credit, and a Labour-Sponsored Venture
Capital Tax Credit.
- These new programs are designed to stimulate the growth of small
business and new jobs in expanding areas of the economy, with a
particular focus on the needs of rural Newfoundland and Labrador.
- Target opportunities will include small businesses such as
information technology, aquaculture, advanced technologies, dimension
stone, manufacturing, value-added resource based enterprises (forestry
and agrifoods), tourism and cultural industries.
- Our consultation with the business community revealed the need for
both programs. They are complementary and respond to the demand of
capital requirements for businesses at various stages in their
development.
- The direct equity program is suitable to early stage or start-up
operations, while the labour-sponsored venture capital program is more
suitable to bringing the business past the early stage to the next
level.
Here�s how the programs will work.
- The Direct Equity Tax Credit program provides individual investors
with a provincial tax credit for investing directly in an eligible
business through the purchase of newly-issued shares.
- The tax credit helps lessen the risk for the investor, while giving
early-stage companies greater access to private investment from
individual investors.
- The Direct Equity Tax Credit has been designed to stimulate
business investment generally, and to meet the particular challenges in
rural areas of the province where it is typically more difficult to
raise capital. Consequently, government has decided to implement a
two-tier rate structure.
- The Direct Equity Tax Credit will provide a tax credit rate of 20
per cent for investment in eligible businesses on North East Avalon, and
35 per cent to investors who make a direct investment in an eligible
business in the remainder of the province.
- A more aggressive approach is required to attract equity capital to
rural areas of the province. Consistent with that theme, this incentive
for rural areas is among the most aggressive in the country.
- The second program we are announcing today is the Labour-Sponsored
Venture Capital Tax Credit program.
- Simply put, the Labour-Sponsored Venture Capital Tax Credit program
is administered by a registered venture capital corporation that is
sponsored by a labour group.
- The corporation may raise funds from individual investors who can
receive provincial and federal tax credits. A provincial tax
credit of 15 per cent will be provided, along with a federal tax credit
of 15 per cent, for a combined incentive of 30 per cent. The funds are then pooled and invested by the venture capital
corporation in eligible businesses.
- Government will approve a venture capital corporation through a call
for proposals from proponents.
- In keeping with our focus on the rural challenge, preference will be
given to proponents whose business plan commits to target at least 50
per cent of its investments outside the North East Avalon.
- Government will issue a call for proposals from potential venture
capital corporations in the next month or so. Based on an assessment of
proposals, the venture capital corporation will be selected and given
permission to raise funds within the province and issue provincial tax
credits to investors. The successful corporation should be up and running early in 2001.
- The Federation of Labour will be consulted in the development of the
criteria and guidelines prior to the call for proposals.
- Today�s announcement reflects government�s ongoing commitment to
support and encourage economic development throughout Newfoundland and
Labrador, particularly in rural areas of the province.
- Jobs and Growth remains high on Government�s agenda and further
measures to stimulate economic growth will be revealed with the release
of government�s jobs and growth strategy later this fall.
Thank you.
And now, I�d like to open the floor to questions from the media.
2000 10 30
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