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LEGAL REPORT: LIFE SCIENCES & BIOTECH Life sciences and biotech companies get a valued break from amendments to the Income Tax Act. BY DARY L -LYNN CARLSON Federal budget could help innovation C anada's life sciences and biotech companies have, despite being innovators in a field that is in high demand, been struggling with regula- tory and legislative requirements in Canada that do not foster growth in the sector. But lawyers who provide advice to companies in the fledgling sector say an amendment to the Income Tax Act announced by the federal government in its March budget could serve as a boost to the industry. Essentially, the amendment will eliminate the need to obtain clearance certificates under s. 116 of the Income Tax Act for any dispositions of shares for most Canadian corporations. In the past, any shares exceeding 25 per cent of a company's total value were consid- ered to be taxable, which has deterred investment by investors outside of Canada. The amendments narrow the definition of investment into Canadian companies and as a result, will exempt many key investors from having to pay into Canada's tax system. Lawyers say the change could help facilitate Canada's life sciences and bio- tech industry, which has been struggling to attract venture capital due to onerous tax requirements, and breathe life back into the sector that was also affected by the recent economic downturn. "The biotech sector has been having a difficult time over the last several years," says Jeremy Grushcow, a life sciences lawyer at Ogilvy Renault LLP whose practice focuses on business services related to knowledge-based industries such as life sciences, cleantech, and technology. He says the sector's difficulties actu- ally began before the economy tanked in early 2009, primarily due to obstacles his clients have faced accessing money from venture capitalists, along with pro- vincial requirements which can curtail investment opportunities. He points out, for example, that Quebec's provin- cial tax credit system is more condu- cive to accommodating private invest- ment than any other province, which provides incentives for venture capital investors and other private resources to invest in biotechnology and life sciences startup companies. He notes that the Ontario Emerging Technologies Fund, established last year, hasn't made any investments into the biotechnology or life sciences sector so far, nor has the province's Venture Capital Fund, launched in 2007. "Companies need better access to early-stage capital," says Grushcow. "The industry in Canada has a phe- nomenal research base, but we're not that great at commercialization yet. We need to find a better way to move the research out to the private sector, out of the universities." www. C ANADIAN Law ye rmag.com M AY 2010 51 HUAN TRAN