A new provincial pr0gram to encourage Prince Edward Island residents to invest in Island companies has caught the attention of the province’s financial advisors.

The share purchase tax credit, part of the provincial government’s new Progressive Tax Rebate Program, provides a direct rebate on personal income taxes for individuals who invest in eligible Island companies.

The credit, worth 35% of the value of the investment, can be as much as $35,000 a year.
“[The credit] looks like it’s going to be a positive thing,” says Shane Connolly, co-owner of Connolly Financial Group in Charlottetown and chapter president of Advocis in P.E.I.

Tom Banks, past president of Advocis and owner of Banks Financial Group Inc. in Charlottetown, says there is potentially value in the incentive.

However, Banks also raises a cautionary note: “The share purchase tax credit may be an attractive incentive for investors already considering an investment in the eligible business, as well as [for] investors already familiar with investing in similar businesses.”
The tax credit itself, however, should be a secondary consideration to the actual investment in the business, he adds.

From the government’s point of view, as long as financial advisors are talking about the tax credit, the program is already successful. “We’re trying to bridge the company that needs capital with investors,” says Bruce Johnson, project analyst with Technology P.E.I.
“Part of the challenge is reaching out and touching the [financial] community.”

To qualify for the tax credit, the investment must be made in an “eligible” company. That means a company in a key sector: export-focused manufacturing and processing; interactive, information and communications technology; aerospace; the life sciences; or renewable energy.

The company must also have a permanent presence in P.E.I. and pay 75% or more of its payroll to employees who live in the province. Investors must be at least 19 and residents of the Island, at least at the time they invest.

Once a company is given the government’s stamp of approval, a share purchase tax credit certificate is given directly to the firm, which, in turn, provides the certificate to the individual when compensation for the shares is received.

To claim the rebate, an investor simply submits the share purchase tax credit certificate along with his or her income tax return to the Department of Development and Technology.

“We want Island investors to invest in Island companies,” says Johnson. The tax credit, he adds, is “a little sweetener.”

And some sweetener, it appears, is necessary when you are Canada’s smallest province and more than 1,200 kilometres from the country’s financial centre. “It’s no secret that in Atlantic Canada, many people invest through their pensions and mutual funds, but most of that money never finds its way back to Atlantic Canada,” Johnson says. “Fund managers don’t have to go far outside Bay Street to find 20 companies to invest in. Why go to P.E.I.?”

The share purchase tax credit is one of four elements in the province’s new Progressive Tax Rebate Program, which is designed to stimulate business growth and investment in the province.

The other parts to the program are the innovation and development tax credit, to promote innovative products and services for export; the enriched investment tax credit, for manufacturers of products with a strong export focus; and the specialized labour tax credit, to attract new expertise to P.E.I.

Michael Currie, P.E.I.’s minister of development and technology, says the program is already paying off. Since the incentive initiative was created this spring, 171 new jobs have been created.

“It’s great to see Island companies putting the Progressive Tax Rebate Program to such good use,” he says. “The introduction of these new tax measures has led us in a new direction of business development in P.E.I.”

That new direction includes redefining what a tax program really is.
“People think tax credits and entitlement. This is not the case with these,” Johnson says.

“These are business-development programs,” he continues. “They are incentives and support for certain activities.” IE