The Investment Industry Association of Canada (IIAC) says that the federal government must do more than investing in venture capital funds in order to solve the problem of a paucity of small business financing.

In his latest missive to the industry, Ian Russell, president and CEO of the IIAC, argues that the recently-announced federal plan to deploy $400 million to support Canada’s flagging venture capital industry is not enough, and won’t work quickly enough, to help small and medium sized businesses raise growth capital. “The record of Canada’s venture capital industry suggests more is needed,” he says in his letter.

Feds focus on venture capital

Russell’s letter suggests that what’s also needed to help solve the venture funding problem is “a broadly-based tax incentive to encourage institutional and retail investors back into the marketplace to purchase new shares of small, successful and growing businesses.”

It suggests a couple of options. “The government could consider a Canadian version of the U.K. Enterprise Investment Scheme, providing an income tax break and capital gains exemption to invest in the new shares of designated small companies,” it proposes.

Alternatively, the IIAC suggests that the government could provide, “a rollover exemption on capital gains taxation on the sale of financial or real assets, conditional on the reinvestment of the proceeds in common shares of small high-growth companies within six months of the sale of the disposed asset. Also, lower effective capital gains tax rates could apply for IPO shares or secondary offerings of treasury shares of small high growth companies.”

“In its venture capital policy, the federal government has identified a serious problem for our economy. They need, however, to target a more precise and comprehensive solution,” it concludes.