Canada Losing Wealthy Immigrant Investors

posted on April 5, 2016

By Investment Immigration |

The following was presented by Colin R. Singer as a key note speaker at the Conference Board Canada, Immigration Summit, Ottawa, April 5, 2016.

By Investment Immigration |

The following was presented by Colin R. Singer as a key note speaker at the Conference Board Canada, Immigration Summit, Ottawa, April 5, 2016.

The federal government is losing out on the world’s wealthiest investors despite Canada being an enviable destination for ultra high net worth business people. It lost its way when the previous federal government terminated the federal immigrant investor program and replaced it with a program that has failed to attract any significant interest. Canada must now reclaim its role as a dominant operator in the residence through-investment industry as it has the policy basis and the market demand to do so.

A leading study gives conclusive evidence that immigrants are far more likely to own businesses than their Canadian counterparts, a key component for economic growth. Released in March 2016 and entitled Immigration, Business Ownership and Employment in Canada, the study concludes that ‘rates of private business ownership and unincorporated self-employment are higher among immigrants than among the Canadian-born population’. We know this officially for the first time because data based on immigrant business ownership has only recently become available with the introduction of the Canadian Employer-Employee Dynamics Database, which you can access here.

Why wouldn’t Canada want to attract new residents and citizens who start their own businesses, create much-needed jobs and undertake substantive consumption expenditures in the local economy?

Canada’s history in the residence-through-investment industry

Until 2014, the Federal Immigration Investor program gave entry-level millionaires a pathway to residency and ultimately, citizenship in Canada. The scheme operated largely on the interest income earned from investors’ funds. The program benefits to Canada, peaked during the 1990s, when interest rates were high.

Despite a long regime of low interest rates, the very same scheme, with the proper investment threshold adjustments, would still put Canada at the forefront of investment immigration for mid-level applicants today, and bring immeasurable benefits to Canada, if it were not terminated. When it was cancelled in 2014, more than 15,000 mainly-Chinese business immigrants had been waiting for as long as six years, each ready to invest $800,000 in a federal backed immigrant investor program.

The previous entrepreneur program, although far less popular, was also terminated primarily because federal immigration officers could not efficiently assess the viability of proposed business projects in provinces.

The new replacement program for the former immigrant investor program was launched in February 2015 and was aimed at ultra high net worth investors. Known as the Immigrant Investor Venture Capital (IIVC) Pilot Program, it confirmed Canada`s definitive retreat from the high net worth investor industry. However the new program was doomed to fail from the start.

It aims to attract ultra high net worth individuals, (those investing $2M for temporary residence for applicant and family members) through largely uncompetitive conditions such as mandatory language testing and an investment requirement of $2 Million into an approved fund for 15 years. Programs in the USA, UK, and Australia (referred to as Tier 1 countries based on visa free travel and other indexes), among others, require considerably less onerous conditions, and this explains why less than 10 applications have been received against a target of 60 for this pilot project program.

As a consequence of this failed policy, Canada is losing out on attracting the world`s most successful business people and their families who otherwise would choose to settle here.

Conversely, the Quebec government continues to promote its highly successful Quebec Immigrant Investor Program (QIIP), which has been in place since 1986. It requires applicants to have a net worth of $1.6 million, two years of business experience in the last five, an intention to live in Quebec, an $800,000 investment over five years, after which the money is returned with no interest and a $15,000 processing fee.

The administration of the QIIP program is largely funded by the processing fees it charges investors and it was fully subscribed in 2014 and 2015 with 1,750 applicants each year. The 2016 version of the QIIP program will open on May 30th and will accept 1900 applications.

The benefits of the QIIP to the province are undeniable. Through Investment Quebec, the province manages an immigrant investor fund that issues grants to Quebec businesses. During the period January 2001 through February 2016, the QIIP program generated more than $700 Million from immigrant investors and this sum was allocated to 4,737 Quebec businesses located in 17 regions throughout the province.

Canada’s Policy Needs

On the basis of the empirical evidence contained in the Immigration, Business Ownership and Employment in Canada, findings, Canada has the policy basis to justify re-designing an ultra high net worth business immigration program. It just needs to create the right policies and well structured programs that will succeed in attracting carefully chosen ultra high net worth business people and ensure the financial benefits that can be realized.

It was recently confirmed the Liberal government plans to inject some life into the country’s struggling economy by committing substantial expenditures on a variety of projects over the next five years. The result could be a budget deficit that may exceed $120 billion during the period.

One way to offset this shortfall is to re-design policies under federal investment immigration programs that will bring significant capital to Canada and at the same time, attract some of the world`s most successful business people to settle in Canada. This will offer such individuals with opportunity to relocate their families here, enroll their children in Canadian study programs and pursue continued successful business ventures over the longer term.

If executed strategically, Canada will realize significant gains to its human capital in the immediate term and through the children of such business people, in the long term. The human capital benefit that the children of successful business people bring to Canada is immeasurable and invaluable.

A new business program must fit within the current legislative framework

Our diverse country featuring shared jurisdiction between the federal government and the provinces and territories in immigration matters has resulted in each of the 10 provinces and three territories devising their own immigration policies and programs, known as provincial nominee programs (PNP), that are tailored to their individual requirements. Given the individual nature of each province and territory, provincial governments are best suited to devise and manage their own individual programs.

Within PNPs, many of the provinces promote active entrepreneur options to a small number of high net worth business people. Depending on the province, programs typically operate under modest annual quotas, and require investments ranging from $150,000 to $800,000 among other criteria.

Quebec, through its QIIP, runs the only provincial passive high net worth investor program, which will remain so because of a long-standing agreement as well as prohibitions contained in section 87 of the Immigration and Refugee Protection Regulations.

There is no logic for the federal government to create a secondary entrepreneur program that has many of the hallmarks of existing provincial programs.

Consequently, there is strong policy justification for a carefully-structured and viable passive immigrant investor program, geared towards ultra high net worth investors, at the federal level. The objective would be to resurrect the failed Immigrant Investor Venture Capital (IIVC) Pilot Program.

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