Truth Behind Canada Startup Re-Location Subsidy

Last week when the WSJ reported of a new Canadian government program that sought to lure US hi-tech startups to the great white north – heads turned.

The article described how Canada had a new subsidy program that would pay 80% of a foreign based startups’ labor costs if they moved their operations to Canada.  The only catch was that the company had to be majority controlled by a person(s) who was a Canadian resident. But even by setting up a satellite office in Canada a startup company could net a 50% salary reimbursement.

While the name for the mysterious new incentive program was not given, a detailed example was. Adam Adelman, the co-founder of Mighty Cast an IoT hardware startup – explained how he took advantage of the program and moved his company’s operations from Silicon Valley to Montreal. In return Mighty Mouse received 80% of their salary expenses reimbursed via a rebate – not tax credit – whether or not the firm makes any money.

This story made big waves across Twitter with everyone from Canadian journalists to venture capitalists and foreign startups chiming in on the opportunity and questioning legitimacy of this program.

But just as some startups’ were ready to pack their bags and head north the Globe and Mail published a follow-up story titled “Shredding Some Myths about Canada’s Tech Startup Subsidies”. In it, writer Shane Dingman, brought the hype and buzz surrounding the mysterious program back to reality. Dingman reported that while Mighty Cast did in fact receive subsidies from the Canadian government, the circumstances surrounding it were unique and probably wouldn’t work for most Silicon Valley startups.

The main source of the funding Mighty Cast received was from SR&ED (Scientific Research and Experimental Development) Tax incentive refund. A program anyone who’s involved with the hi-tech industry in Canada is no doubt familiar with.  But with a base rate of just 35%, Mighty Cast also took advantage of additional Canadian startup funding programs to get to the 80% mark.

These included a Quebec provincial SR&ED top-up worth upwards of 35% awarded to “Quebec Canadian-controlled corporations with less than $50 Million in assets” – along with a funding grant from the Canadian Media Fund.

So while the WSJ was correct in reporting that Mighty Cast received a considerable funding incentive from Canada, it came from a combination of existing programs and not a new start-up subsidy.

When something sounds to good to be true, more often than not it is - especially when it comes to funding.

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