Both federal and provincial governments have programs in place to encourage investment in Ontario’s growing technology-based businesses.
Investing In Business Innovation (IBI)
This program is specifically designed to help start-up business obtain angel and venture capital investments.
Administered by the Federal Economic Development Agency for Southern Ontario, IBI assists start-up businesses with accelerating the commercialization of new products, processes, and practices by increasing, stimulating, and leveraging private-sector investment.
Eligible start-up businesses that have secured conditional funding (i.e., a draft term sheet) from an eligible angel or venture capital investor in southern Ontario may be considered under the initiative. Upon approval, start-up businesses will be eligible for repayable contributions up to $1 million for no more than one third of total eligible and supported project costs. Angels and/or venture capital investors must be committed to provide at least two thirds of the cash contribution toward eligible and supported project costs.
For example, a start-up company requiring $3,000,000 of funding would be able to obtain $1,000,000 of non-dilutive repayable assistance from the Investing in Business Innovation program upon obtaining financing from PAN (and other investors) of $2,000,000.
Ontario Emerging Technology Fund (OETF)
This initiative of the Ontario Ministry of Research and Innovation encourages seed and early-stage investments in Ontario’s cleantech, life sciences, and digital media companies.
The OETF is a co-investor investing on the same amount, terms, and conditions as the principal or lead investors. Under certain conditions, investments made by PAN could be eligible for a co-investment by the OETF.
For example, a start-up company conducting a $10,000,000 round of financing could obtain, subject to eligibility conditions, $1,000,000 of repayable investment from the Investing in Business Innovation program and $4,500,000 of co-investment by OETF. PAN members and other investors would be required to invest $4,500,000 to complete the offering and satisfy matching conditions.
Ontario Tax Exemption for Commercialization
The purpose of the Ontario Tax Exemption for Commercialization (OTEC) program is to support innovation in Ontario’s economy by encouraging the commercialization of intellectual property, which is developed by qualifying Canadian universities and colleges. The OTEC program applies to newly established corporations operating businesses in priority areas by offering an exemption from Ontario’s corporate income tax and corporate minimum tax for the first ten taxation years of the corporation.
Under the current tax rates, for every million dollars of taxable income generated by eligible spin-off companies, the companies will be exempt from paying taxes of approximately $140,000 (general active business income tax rate of 14%) for the first 10 years after incorporation. This should result into larger dividends and higher gains on disposal.