The Chamber of Commerce of Metropolitan Montreal

Recommendations of the Board of Trade of Metropolitan Montreal as part of consultations on Phase-Out of the Labour-Sponsored Venture Capital Corporations Tax Credit

The Honourable James M. Flaherty
Minister of Finance
140 O'Connor St.
Ottawa, Ontario  K1A 0G5

Subject:   Recommendations of the Board of Trade of Metropolitan Montreal as part of consultations on Phase-Out of the Labour-Sponsored Venture Capital Corporations Tax Credit

Dear Minister,

On behalf of the Board of Trade of Metropolitan Montreal, I would like to share our recommendations as part of consultations on Phase-Out of the Labour-Sponsored Venture Capital Corporations Tax Credit.

The Montréal metropolitan area, which represents 10% of Canada’s GDP and more than half of that of the province, is the second largest economy in Canada and the largest in Quebec. Its prosperity depends on competitive, innovative and dynamic businesses, which require ready access to investment capital.

Labour-sponsored funds (Fonds de solidarité FTQ and Fondaction CSN) are two pillars of the financial ecosystem of Quebec and Montréal. They help provide the economy a dynamic venture capital and development environment that meets needs throughout the business life cycle. They promote the creation and expansion of innovative businesses and generate tens of thousands of quality jobs every year.

As one would expect, the surprise announcement in the 2013-2014 federal budget of the elimination of the tax credit for labour-sponsored funds raised serious concerns within the Montréal metropolitan area’s business community. By their very nature, these funds must make up for withdrawals through new deposits. The elimination of the tax credit, even if gradual, will create immediate pressure to free up liquidity in the medium term, which will undermine the businesses supported and make two important pillars of our financial ecosystem vulnerable.

In May, the Board of Trade of Metropolitan Montreal published a report that measures the impact of labour-sponsored funds on the economy of Quebec and Montréal as well as on the savings habits of taxpayers. This report helped identify the possible repercussions on our collective prosperity of the federal government’s decision with respect to tax incentives. We would like to stress the importance of the conclusions of this report, which we sent to you as well as to a number of other federal ministers in May. The report includes seven findings:

  1. Labour-sponsored funds are active throughout the business life cycle, from startup to maturity, both in high-tech and traditional sectors. These funds contribute both to venture capital and development capital, two essential tools for consolidating and growing local businesses.
  2. Tax-advantaged funds complement private funds as an investment offer. Tax-advantaged funds invest in companies in the very long term – compared with an average of five years for private funds ‒ and in sectors that are less well served by specialized funds and government programs, such as more traditional sectors and small and medium-sized businesses.
  3. Tax-advantaged funds ensure the availability of investment capital throughout economic cycles, and, as a result, limit the impact of recessions and tighter lending conditions on businesses. This is mainly due to the fact that these funds have a long-term investment horizon, annually collect funds from their shareholders and must invest 60% of their funds in Quebec.
  4. The fiscal and parafiscal benefits of the labour-sponsored funds tax credit offer governments a substantial advantage. In the case of Fondaction, the IRÉC[1] estimates the cost-benefit of the tax credit at 2.05 for the provincial government and at 1.26 for the federal government. With respect to the Fonds de solidarité FTQ, according to a study by the firm SECOR, for a year of operations with economic growth, the federal government recovers the equivalent of all the tax benefits granted after 3.8 years and the provincial government does so after 2.1 years.[2]
  5. Tax-advantaged funds generate a coattail effect on specialized funds. They often provide an initial investment in specialized funds, which mobilizes complementary capital.[3] In Quebec, tax-advantaged funds, including labour-sponsored funds, have contributed over $625 million to the Quebec venture capital market in the past five years. Labour-sponsored funds are very important in positioning Quebec as one of the world leaders in this area.
  6. Tax-advantaged funds have a major impact on the economy of the Montréal metropolitan area. To date, labour-sponsored funds have invested over $2.3 billion directly in businesses in the Montréal metropolitan area. And given their investments through specialized funds, labour-sponsored funds have contributed to the creation or maintenance of over 35,000 jobs in the city. It goes without saying that even a gradual elimination of the tax credit for shareholders of labour-sponsored funds will have a devastating impact on our industrial fabric.
  7. Tax-advantaged funds increase the propensity to save. Labour-sponsored funds provide access to savings for over 700,000 shareholders of the Fonds de solidarité FTQ and the Fondaction CSN, namely through deductions at source. As a result, many shareholders of these funds save more regularly and tend to diversify their sources of retirement savings. They attract a category of salaried employees who normally do not save or save little for their retirement. Labour-sponsored funds give rise to behaviour that we need to encourage given the demographic challenge currently facing Quebec and the low rate of savings among Quebecers.

In light of this analysis, we would like to reiterate our request that the federal government review its decision to gradually eliminate tax credits for labour-sponsored funds. Our economy derives a great deal of benefit from the efforts of these funds, and eliminating tax credits will be detrimental to our industrial fabric and savings. Quebec and Montréal need these financial tools to prosper.


Michel Leblanc
President and CEO

Encl.    The study The Importance of Labour-Sponsored Funds for the Economy of Metropolitan Montreal.

  1. [1] IRÉC. July 2012. Nouvelle méthodologie pour le calcul des retombées de Fondaction, Oscar Calderon.
  2. [2] SECOR. July 2010. Analyse de l’impact économique des investissements du Fonds de solidarité des travailleurs du Québec.
  3. [3] DELOITTE. 2013. Étude sur les fonds fiscalisés.
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