The spring budget announced the pending demise of a 15 per cent tax credit for investments in Labour Sponsored Venture Capital Corporations.
The union-backed mutual funds are focused on helping small and medium-size firms create jobs.
The program, costing the federal treasury about $140 million a year, is wildly popular in Quebec where about 88 per cent of the tax credit is claimed.
The Finance Department, which plans to phase out the credit by 2017, received 44 written submissions in a two-month consultation period ending in July.
Of those, 37 were from Quebec non-profits, trade associations, co-operatives, unions and businesses, virtually all of them demanding that Ottawa reverse the decision.
"The submissions largely focused on the benefits of the LSVCC tax credit and its continued value and importance, especially in Quebec," says an internal analysis.
"These submissions were generally put forth from stakeholders of various kinds, including businesses, non-profits, trade associations, and labour-sponsored finds themselves."
A heavily censored summary of the consultations was obtained by The Canadian Press under the Access to Information Act.
The Quebec government, which tops up the credit with another 15 per cent of it own, has loudly opposed Ottawa's move, creating another policy flashpoint between the province's sovereigntist administration and the Conservatives.
At least one such Quebec fund has organized petitions and letter-writing campaigns to MPs.
The Opposition NDP, with a majority of its MPs from Quebec, has also opposed the budget measure, drawing support from business groups across the province.
"It's a success story, especially in Quebec," New Democrat labour critic Alexandre Boulerice said in an interview, adding the funds have supported 600,000 jobs in the province while helping people save for retirement.
"If it's not broken, don't fix it."
But the federal government says the funds are not working, with poor investment returns, weak accountability and dubious ability to raise fresh venture capital.
Think-tanks such as the C.D. Howe Institute and Montreal Economic Institute, as well as the OECD, have pressed for the elimination of the tax credit.
And Ontario ended its own tax credit for labour-sponsored investment funds in 2012.
A Finance spokesman, Jack Aubry, said the department is reviewing the comments and plans to release proposed amendments to the tax-credit rules "shortly."
The tax credit was introduced by the Conservative government of Brian Mulroney in 1988 to help stimulate job growth at a time when venture capital was scarcer.
The Finance Department estimates there now are about $11.2 billion in assets in 19 registered labour-sponsored funds. By far the largest is the Quebec-based Fonds de solidarite FTQ, holding three-quarters of all such assets.
Individuals can claim a tax credit of up to $750 each year for investments of $5,000 maximum in these funds, which can also be held inside an RRSP. Two such funds in Quebec claim some 700,000 shareholders.
The March 21 budget put an end to new fund registrations, and set out a schedule for gradually reducing the value of the credit to zero by 2017.