The Government of Canada today launched public consultations on the tax rules governing Labour-Sponsored Venture Capital Corporations (LSVCCs) to assist these corporations with an orderly phase-out of the federal LSVCC tax credit. The Government is replacing the LSVCC tax credit with new venture capital programs that experts say will do more to create jobs and economic growth in Canada.
Economic Action Plan 2013 proposes to phase out the federal LSVCC tax credit by 2017. The Government is proposing to eliminate a tax subsidy that independent experts and commentators—such as the Organisation for Economic Co-operation and Development (OECD)—say is not working to promote economic growth and jobs:
The LSVCCs have distorted the market for venture capital, lowering the average quality of deals and limiting the supply of equity to non-traditional industries and newer companies….The governance structure of LSVCCs leads to less-skilled fund managers and poorer fund performance….Overall, the damaging effects of the LSVCC tax credits on the financing of innovation along with their fiscal costs present a clear argument for their elimination. (2006 OECD Economic Surveys: Canada)
The Government is seeking public input on potential changes to rules related to investment requirements, wind-ups, redemption’s and other rules governing the operation of LSVCCs. This input will be used by the Government as it prepares draft legislation to phase out the tax credit. The draft legislation will be released for public comment at a later date.
Comments can be sent to the Department of Finance at ConsultationsLSVCC-SCRT@fin.gc.ca