Sweeping changes to tax regulations would benefit new media industry: roundtable

The head of an industry working group on capital markets and tax reform sweeping regulatory changes are needed to ensure new media and other ‘new economy’ businesses are properly financed. John Eckert, managing partner at McLean Watson Capital Inc and a veteran of several multimedia business ventures, says removing barriers such as high personal and capital gains taxes would encourage more foreign money to move in, and for projects such as post-production graphics work on film and television products to be done in this country. Eckert, whose experience includes financing Montreal-based SoftImage and serving as a director at Vancouver-based Rainmaker Entertainment Group, says Canada’s problem isn’t its lack of talent. Rather, he says, unfriendly business rules are driving a disproportionate number of jobs and contracts south to Hollywood and New York every year. He cites punishing capital gains taxes, the lack of a rollover provision for investment in high-risk ventures, and the taxation of foreign investment monies as retarding the growth of Canadian companies – not just in new media, but across the board. To help stem the tide of talent and cash south, he says it’s crucial the Canadian government adopt a series of wide-ranging changes tabled last month by the Canadian E-Business Opportunities Roundtable Capital Markets. The organization, which is headed by Eckert, outlined its recommendations in a brief submitted to the House of Commons Standing Committee on Finance as part of its pre-budget consultations. The group is drawn from over a dozen industry and financial representatives who continued work on finding ways to capitalize on the information economy after a general report issued last January. Among other things, the group was charged with finding ways to stem the so-called brain drain, establish Canada as a leader in technology development, develop the world’s largest pool of venture capital and successful new companies as a percentage of GDP, and increase the level of foreign investment, job creation and disposable income for Canadians. In reporting its findings to the committee, the working group stresses that the only benchmark of note is the economic performance of the Canada’s largest competitor - the U.S. To achieve those goals, the Capital Markets team makes several recommendations, including reducing the capital gains tax to 30 per cent for investments held longer than one year, deferring capital gains when reinvested back into eligible investments such as early-stage technology risks (with no limits on how large a company or value of assets can grow), reducing capital gains by 50 per cent on shares of IPO small businesses so long as the investment is held for five years, reducing personal taxes, taxing options at their strike price regardless of when the shares are sold, permitting the holding of shares obtained through the exercise of options in RRSPs, and making student loan principals tax deductable. Eckert told Canadian NEW MEDIA that while he doesn’t expect all of the team’s proposals will be implemented, substantial changes are necessary to convince the global investment community that Canada is business-friendly. Incremental changes, he says, won’t be enough. Signs are positive that at least some of the group’s recommendations will be adopted. Finance Minister Paul Martin’s mini-budget this week is expected to reduce both personal taxes and capital gains taxes. "I think we’ll see a number of those recommendations put forward in whole or in part," he says. "I think we have had a good reception from Ottawa, and I’m optimistically cautious that we’ll see success." While the roundtable’s recommendations may leave the group open to charges that it is favouring new economy companies with their explosive stock prices and demand for new capital, Eckert maintains that what’s good for the new economy is good for the rest of the nation. "People kind of look at this and say ‘oh, special interest group looking to make more 25-year-old kids multi-millionaires.’ Yes, we’ve read about all that and it’s great that it happens, but underneath that is a whole machine and engine of job creation and economic well-being for all Canadians everywhere regardless of industry, geography, and level of skill." As for whether the proposed new rules would favour well-established new media companies such as Alliance Atlantis Communications Inc or small entrepreneurs, Eckert says both would benefit. "You’re, in effect, saying to the founders and shareholders and employee option holders of an Alliance Atlantis that, hey, you can make as much money here from the fruits of your efforts than you could in the U.S….. If you spoke to (chair/CEO) Michael McMillan, he would say looking for great people is a big part of what he does, and he often can’t get the quality of people because a lot of those people say they want to go to the States.’ This is all incremental. No one change alone is going to make everyone say, ‘whoa, I’m coming back to Canada.’ But, we have to start."

Sweeping changes to tax regulations would benefit new media industry: roundtable

News | 10/18/2000 4:00 am EDT

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