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Risk Capital Investment Tax Credit - A Guide For Businesses
Department of Finance
Last Verified:
2006-03-20
The Risk Capital Investment Tax Credits Act was designed to promote healthy economic growth of territorial businesses, and to create and sustain employment in the Northwest Territories.
The program allows taxpayers to qualify for tax credits by investing, either directly or indirectly in corporations that carry on business in the Territories, and that qualify as an "Eligible Business".
Eligibility Criteria
Who should consider this program?
Businesses that are prepared to sell a minority interest to arms-length investors might consider this program to help finance expansion and growth. If your company has a healthy outlook, investors may be interested, particularly if they qualify for income tax credits.
Is my business eligible?
Active, privately held, Canadian taxable corporations that are based in the Northwest Territories and have the majority of their staff and assets located in the Territories may qualify as Eligible Businesses.
To participate as an eligible business, you need to register as a Territorial Business Corporation (TBC), or be included in the approved investment plan of a registered Venture Capital Corporation (VCC). You will require legal and accounting advice to ensure investors can qualify for an income tax credit. There's an ongoing obligation to provide reports to shareholders on an annual basis. Registration follows submission of your plan.
Minimum qualifications for an eligible business
- Canadian owned;
- Permanent place of business in Territories;
- Less than 500 employees;
- 80% of assets located in the Territories;
- Not publicly traded;
- Not financially related to the investors;
- Registered as an Eligible Business or Territorial Business Corporation;
- Issue Eligible Securities
Plus:
Eligible for Labour and Employee venture capital corporation investment:
- Less than $50 million in assets;
- Minimum 50% of wages to Territorial workers;
- At least 50% of workforce in Territories.
Or:
Eligible for Community Venture Capital Corporation (VCC) and Direct Investment:
- Less than $100 million of assets;
- Minimum 75% of wages to Territorial residents;
- At least 75% of workforce in Territories.
Summary
Who would qualify for tax credits?
There are essentially two routes for new minority shareholders to obtain tax credits. A venture capital corporation can be formed by employees, labour or a community group and the VCC, in turn, invests in your business. Alternatively, individuals and corporations can purchase securities directly from a business that is registered as a Territorial Business Corporation.
Either of these investments may qualify for a 30% Territorial personal income tax credit. Individuals may also be able to shelter their investment in a Registered Retirement Savings Plan.
Eligible corporate investors may qualify for a 15% Territorial corporate income tax credit.
The tax credits are available only for securities purchased from corporations or venture capital companies registered under the Act at the time of purchase.
Registration
Eligible investors in registered TBCs will qualify for Territorial personal or corporate income tax credits. To register, TBCs and VCCs must submit a business and investment plan to the Program Administrator. The investment plan should include the list of potential investors (if known), the value and type of securities to be sold, and the use to be made of the risk capital raised.
What can a business use the money for?
The aim of the program is to encourage investment that will provide substantial economic benefit to the Territorial economy. The business plan you submit can include activities located in the Territories such as start-up, expansion or import replacement. Purchase of another eligible business may also qualify. Risk capital cannot be used for such activities as payment of dividends or repayment of existing shareholders. A list of ineligible uses is available.
Shareholder considerations
Investors forming a Labour or Employee venture capital corporation are locked in to the investment for 8 years. Employers can set up payroll deduction plans to assist employees to invest in the business.
Individual or corporate investors who purchase shares in a Community Endorsed Venture Capital Corporation, or directly from a Territorial Business Corporation must hold their investment for 5 years.
How much risk capital can be raised under this program?
To qualify for the investor tax credit the minimum issue would be $25,000, raised from a minimum of five non-related investors. The upper limit is $3 million raised in any one-year or a total of $6 million over any four year period.
There is also a limit on the volume of Territorial Tax Credits available each year. The credits are allocated on a first in/first out basis. Registration of a Labour Sponsored Venture Capital Corporation, an Employee Venture Capital Corporation or a Community Endorsed Venture Capital Corporation, or registration of your business as a Territorial Business Corporation effectively "books" tax credits for your investors.
To register as an Eligible Business, a Territorial Business Corporation, or to obtain information on setting up Venture Capital Corporations, contact the Program Administrator.
Northwest Territories Contact(s):
Program Administrator, Northwest Territories (West)
Carron Business Services Ltd.
Apt. 401
4503 - 52 Ave
Yellowknife, Northwest Territories
X1A 3Y4
Canada
Telephone: (867) 873-9804
Fax: (867) 920-4817
E-mail: carron@theedge.ca
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