Federal Tax Law Changed to Stimulate Foreign Investment for Canadian Biotech Industry

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Contrary to the implementation of tougher rules for people wanting to enter Canada, the country wants its borders wide open to foreign investment. Determined to become a global player in the biotech market, the Canadian federal government modified a number of tax laws governing the Canada-U.S. tax treaty on March 4, 2010. The changes to section 116 have eliminated cumbersome double tax-filing requirements and administrative delays, which have deterred foreign venture capital and institutional investors from investing in Canadian biotechnology firms.

Trade industry association BIOTECanada lobbied hard for the changes to section 116, which included an amendment to section 248 of the Income Tax Act. By amending the definition of "taxable Canadian property" to exclude shares of Canadian private companies (where not more than 50% of their value is derived from real property in Canada, Canadian resource property, or timber resource property), the government has significantly reduced administrative and economic barriers to foreign investment in Canadian-based innovation and technology. The goal is to create an incentive for foreign investors to enter Canada.

Following news of the changes, Peter Brenders, president and chief executive officer of BIOTECanada, issued the following statement: "We are pleased to see modifications to section 116, which were recommended by BIOTECanada and many others, implemented. This change will create a great incentive to invest in our innovative Canadian firms, and that's what we need to keep our emerging companies growing and continuing to bring new ideas from the lab to the marketplace."

Others in the financial community weighed in with their thoughts. "The changes in tax legislation announced in today's budget are among the most significant changes to capital gains taxation since the introduction of taxation of capital gains in 1972," said John Ruffolo, the Global Tax Technology, Media & Telecommunications Leader for Deloitte LLP (New York, New York). "The Canadian government has listened to the financing community, understood the severity of the problem and removed the major tax barriers that have prevented critically needed international investment capital from crossing our borders."

The changes reflect the growing impact of biotechnology on the Canadian economy. The sector has a direct contribution of $1 billion in research spending per year, and a broader contribution of 6.4% to the GDP ($78.3 billion) through the bio-economy. This contribution is greater than the automotive sector, or the forestry sector, underscoring the critical transformational role of biotech applications.

The good news for the sector continued with the announcement of renewed funding for early-stage research through the granting councils, including the Canadian Institutes of Health Research (CIHR) and Genome Canada, an important boost for the innovation economy. This was followed by news of an additional $600 million commitment over the next three years to help develop the innovation sector and attract talented people to strengthen world-leading research and development capabilities. Additionally, the Canadian government announced plans to begin a comprehensive review of all R&D federal support to improve the federal contribution to innovation and economic opportunities for business.

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