August 29, 2005

The decision to end the province's tax credits for labour sponsored investment funds reflects the McGuinty government's commitment to direct resources where they can best encourage a new generation of economic growth.

In 1988, the federal government introduced the Labour Sponsored Venture Capital Corporation tax incentive program to help kick-start venture capital investment.

In 1991, at a time of recession and high unemployment, Ontario joined the federal program with its Labour Sponsored Investment Fund (LSIF) program. Since that time, the province has invested more than $600 million in this program. Individual investors who buy shares in an LSIF receive a provincial tax credit of up to 20 per cent on a maximum $5,000 investment. The investment must be held for eight years to avoid repayment of the tax credit.

LSIFs are venture capital corporations, designed to provide alternative sources of capital to small and medium-sized Ontario businesses. Today there are 46 registered labour sponsored investment funds and almost $3 billion in capital under management in Ontario.

The 2004 Ontario Budget announced a moratorium on new LSIF registrations as the government examined whether Ontario's participation in this program was still appropriate. The government has determined that the LSIF tax credit has achieved some success in creating a pool of venture capital in the province. With the growing maturity of Ontario's venture capital market, and the new participants it is now attracting, the McGuinty government's focus is shifting to specific challenges, such as research commercialization and ensuring that resources are directed to priority areas.

Today there are more than 200 private sector venture capital funds and close to 200 U.S. funds investing in Ontario companies over the past six years, according to data from Thomson Macdonald, a respected independent source of information on venture capital.

The government is committed to a new generation of economic growth and a modern, prosperous economy. Research and innovation is a key part of this approach. Initiatives that support this commitment include:

• A new Ministry of Research and Innovation, led by the Premier
  
  
• A new Research Council of Ontario to co-ordinate public research and commercialization opportunities, and promote Ontario as a research centre
  
  
• A $27 million Ontario Research Commercialization Program to help public research institutions attract early investment
  
  
• A $36 million Ontario Commercialization Investment Fund to help leverage pools of seed capital to encourage new technology companies
  
  
• $10 million to support the establishment of the McMaster Innovation Park in Hamilton
  
  
• $6.5 million over three years for the new Medical and Related Sciences (MaRS) Discovery District to help market new Ontario technologies to the world.

As part of an orderly end to the provincial tax credit, the government will propose amendments to the program that would give LSIFs more flexibility in the management of their portfolios as they plan their investment strategies for 2005 and later years. Under proposed changes to investment requirements, the Ontario program would parallel the federal program by lowering the requirement to invest in eligible businesses from 70 per cent to 60 per cent of capital raised and remove investment requirements unique to Ontario's program, such as restrictions on investments in public companies. In addition, the government will work with the LSIF industry and the federal government to assist with the transition from a provincial/federal program to a federal-only tax credit.

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For more information visit www.fin.gov.on.ca