Focus on Private Equity | Venture Capital: Canada's Federal Budget Scores in Overtime for the Technology Community - March 2010
Date:
March 4 2010
Today’s Canadian Federal Budget introduced a proposed amendment to the Income Tax Act (Canada) ("ITA") that will remove a major practical barrier to direct investments by U.S. and other foreign VC and private equity firms in Canadian technology companies by alleviating certain notification requirements to the Canada Revenue Agency.
Currently, section 116 of the ITA requires non-resident vendors of "taxable Canadian property", which includes, among other things, shares of most private Canadian technology companies, to obtain a certificate of compliance ("Section 116 Certificate") on the sale or other disposition of their shares. Section 116 applies even if any capital gain realized on the disposition of the shares by the non-resident vendor would be exempt from tax in Canada by virtue of an applicable bilateral income tax treaty. The proposed amendment announced today by the minority Conservative government will eliminate the need for non-residents to apply for and obtain a Section 116 Certificate in connection with the sale or other disposition of shares of Canadian private companies whose principal value is not derived from real property in Canada, Canadian resource property or timber resource property.
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