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Tuesday, 20th February 2007

Financing Canadian Innovation: Why Canada Should End Roadblocks to Foreign Private Equity

Financing Canadian Innovation: Why Canada Should End Roadblocks to Foreign Private Equity (PDF; 95 KB)
Source: C.D. Howe Institute

This paper discusses the Canadian tax barriers to the entry of this needed foreign capital, the harm those barriers cause, and ways to change those laws to unblock that critical capital flow. Among the key recommendations:

First, the federal government should end the tax-clearance process that foreign private equity investors must follow when selling shares of a private Canadian company.

Second, to prevent double taxation, the Canada-US tax treaty ought to be amended to provide US limited liability companies the same tax treatment that ordinary US corporations receive when selling shares of a private Canadian company.

Third, the federal government should permit tax-free rollover of shares of a Canadian company into shares of a foreign company.

Without change, capital-starved Canadian companies will fail to commercialize much of the nation’s R&D investment, raising the risk of Canada squandering a significant share of its intellectual capital, and needlessly imperiling its future economic growth.


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