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HomePolicy Articles Article Summary

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

Commentary by Stephen Hurwitz, Louis Marett

In this article, Stephen A. Hurwitz and Louis J. Marett attempt to answer the question: why do promising Canadian ventures attract only one-third of the capital of their US competitors in the North American marketplace? The authors conclude that Canada’s tax rules, “needlessly, and unprofitably for Canada, block the inflow of hundreds of millions of dollars of needed foreign capital.”

According to the authors, Canada’s tax rules are unduly strict vis-à-vis gains realized by foreigners on the sale of shares in private corporations compared to other countries like the US and the UK. Moreover, the authors assert that such tax rules are particularly disadvantageous given the emergence of India and China as major competitors for foreign investment.

The authors propose that the federal government take three critical steps in order to ensure a freer flow of capital across borders and into Canada: 1) the federal government should end the tax-clearance process for foreign private equity firms when selling shares of a privately held Canadian company; 2) the Canada-US tax treaty should be redressed to allow limited-liability companies the same tax treatment as ordinary US corporations; and, 3) the federal government should allow a tax-free rollover of a Canadian company’s shares into shares of a foreign company. The authors conclude that without addressing the flow of capital into Canada, “much of the investment in R&D [research and development] could be lost.”

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Policy Publication Details

Author(s): Stephen Hurwitz; Louis Marett;
Publisher: C.D. Howe Institute [ Visit Website ]
Year Published: 2007; Publisher Type: Research Institute
Publicly Available: Yes Research Focus: International; National; Regional;
Registration Required: No Language: English
Payment Required: No Publication Format: Adobe PDF

Subjects / Categories:

Policy Articles / Fiscal & Budgetary / Tax Policy
Policy Articles / Fiscal & Budgetary / Business Taxation
Policy Articles / International Trade, Development & Finance / Foreign Investment
Policy Articles / International Trade, Development & Finance / International Market Access
Policy Articles / Monetary & Capital Management / Domestic Investment
Policy Articles / Economy / Federal Economy
Policy Articles / Economy
Policy Articles / Fiscal & Budgetary
Policy Articles / International Trade, Development & Finance
Policy Articles / Monetary & Capital Management
Policy Articles / Economy / Federal Economy / 2007
Policy Articles / Fiscal & Budgetary / Business Taxation / 2007
Policy Articles / Fiscal & Budgetary / Tax Policy / 2007
Policy Articles / International Trade, Development & Finance / Foreign Investment / 2007
Policy Articles / International Trade, Development & Finance / International Market Access / 2007
Policy Articles / Monetary & Capital Management / Domestic Investment / 2007


Keywords / Tags:

investment; research and development; tax policy; US-Canada relations; foreign investment; venture capital; foreign equity; economy;