We are pleased to report that Manitoba’s newly released Economic Development Strategy answers the calls of local investors and the broader startup community with plans to modernize the Small Business Venture Capital Tax Credit Program.
The announcement includes the following significant modifications to the Program which are expected to be implemented in the near future:
- Increasing the annual budget for the Program by 36% to $30 Million
- Lowering the minimum investment from eligible investors from $10,000 to $5,000
- Making simple agreements for future equity (SAFEs) eligible under the Program, which will allow investors and eligible small businesses (ESBs) to use SAFEs without losing out on the tax credit (learn more about SAFEs and how they work in this recent Insight)
- Allowing investments to be made through limited partnerships (LPs), which would allow investors to invest through a single entity and still personally benefit from the tax credit
As discussed in greater detail in a previous Insight, these changes will support ESBs by helping make Manitoba a more competitive market for local investment, expanding Manitoban’s access to capital.
A notable absence from this announcement is the inclusion of venture capital corporations (VCCs) in the Program. VCCs, which exist under the British Columbia’s Small Business Venture Capital Program, Alberta’s Investor Tax Credit Program and Saskatchewan’s Technology Startup Incentive Program, are corporations that are created for the sole purpose of raising funds and investing in ESBs under their applicable tax credit programs. What is uniquely beneficial about VCCs is that the investors of the VCC – rather than the VCC itself – receive the tax credits, even though the VCC directly invests in and holds the shares of the ESBs. The absence of VCCs may be because the adoption of VCCs is more complex and challenging to implement and oversee than these other announced changes.
While the announcement is great news for local investors and ESBs, speculation on when the changes will come into effect may have the unintended consequence of temporarily chilling investments, as investors and ESBs will be eager to access the benefits of this expanded Program. Accordingly, implementing these changes as soon as possible will be vital for supporting ongoing funding activities of ESBs.
We continue to monitor for details on the terms and conditions for the use of SAFEs and LPs under the Program and will provide an update once available, and look forward to working with ESBs and eligible investors to navigate this expanded Program.
For any questions regarding these updates, or the Program in general, please contact Winnipeg-based lawyers Todd Thomson and Kyle Mirecki.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
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