Nova Scotia Department of Finance
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Nova Scotia Equity Tax Credit


*** The 2006-07 budget legislation increased the required hold period for shares from 4 years to 5 years for issues registered after June 30, 2006***.

Introduced in 1993, the Equity Tax Credit, or ETC, is designed to assist Nova Scotia small businesses, co-operatives and community economic development (CED) initiatives in obtaining equity financing by offering a personal income tax credit to individuals investing in eligible businesses. Equity financing is an alternative to other forms of financing such as debt and traditional government assistance.

The credit is not a grant nor is it considered to be a tax shelter.

Eligible Investors

The credit is available to residents of Nova Scotia who are over 19 year of age and who have bona fide reasons for making the investment, other than simply obtaining the tax credit. Each eligible issue of shares must have at least three eligible investors.

It should be noted that any approval of shares issued under the program does not constitute an endorsement by government of the corporation or co-operative issuing the shares. The Province does not guaranty any investment. The investor is at risk for his or her investment.

Eligible Investments

In the case of corporations, eligible investments must be newly issued common voting shares of the corporation that are non-redeemable, non-convertible and are not restricted in profit sharing or participation upon dissolution. The shares cannot be eligible for any other tax credit or deduction allowed under the Income Tax Act, except as a deduction for RRSP purposes. In the case of co-operatives, eligible investments must be a share that would, if it were the only share issued to the investor, allow the investor to be a member in the co-operative and allow the member to participate in the affairs of the co-operative. In addition, shares are not eligible if the investor disposed of any shares of the eligible business at any time after September 30, 1993 and before the specified issue of shares. The specified issue of shares means the shares that are specified in the application of the eligible business to which a Certificate of Registration applies.

Eligible Businesses

Eligible businesses include corporations and co-operatives incorporated pursuant to the laws of Canada, including CED corporations and co-operatives. CED corporations and co-operatives are those organizations created to assist or develop local businesses within the community. The CED corporation or co-operative raises capital by issuing shares to individuals and in turn invests that capital in local businesses. In addition, eligible businesses must meet the following criteria:

  • involved in active business or investing in other eligible businesses,
  • less than $25 million in assets and/or revenues, including associated companies,
  • at least 25% of salaries and wages paid in Nova Scotia,
  • Corporations must have authorized capital consisting of common voting shares,
  • Co-operatives must be marketing, producing or employee co-operatives,
  • Corporations must have at least three eligible investors taking part in the specified issue.

Application

An eligible business must make application to the Department of Finance to obtain a Certificate of Registration prior to issuing shares to investors. This Certificate makes the specified shares eligible for the tax credit. Pre-approval of eligibility is required. This eligibility does not constitute any approval that may be required from the Securities Commission under the Securities Act.

The following information must be included with the application :

  • Completed application form:    
    • Private Corporation    (Word, Adobe)
    • Co-operative     (Word, Adobe)
    • Community Economic Development Initiatives     (Word, Adobe)
  • financial statements for the preceding taxation year and a copy of the T2 income tax return,(this is not required for first year corporations)
  • a copy of the articles of association or constitution of the corporation and memorandum of association,
  • a copy of current shareholder register,
  • in the case of private corporations, a list of 3 proposed investors including name, address, social insurance number and occupation along with a signed statement from each that the information contained in the application with respect to each investor is true and correct and that their investment will meet the spirit and intent of the Act,
  • except in the case of CED corporations or co-operatives, a business plan detailing the amount to be raised by the specified issue, the proposed use of funds raised by the issue, a summary of the major business activities of the corporation including major revenue sources and a listing of all Directors of the corporation including names, addresses and background information.
  • in the case of CED corporations or co-operatives, a community economic development plan containing the economic development strategy of the organization, the community it serves, the amount of capital to be raised by the issue, details of the type of shares to be issued and provisions for the issue of investment certificates.

Prohibited Use of Funds

Funds raised by the eligible business must be used in an active business and cannot be used for any of the following purposes:

  • lending, except under prescribed conditions,
  • purchasing shares, other than shares in other eligible businesses,
  • paying dividends or repaying shareholder debt to a Director, shareholder or officer of the business or an associate of a Director, shareholder or officer of the eligible business,
  • for purchasing services or assets from the Province to carry on a business activity that is the same or similar to the activity carried on by the Province where that eligible business has received any assistance from the Province,
  • the redemption of shares or the funding of the purchase of all or substantially all of the assets of a previously existing proprietorship, partnership, joint venture, trust or company, except where that firm is in receivership or bankruptcy
  • the purchase of assets or services by the eligible business for a price greater than fair market value.

Tax Credit

Effective April 3, 2003, the tax credit is calculated at 30% of the investment made by the individual to a maximum annual investment of $50,000 (maximum annual credit of $15,000). The investment may be made within the calendar year or within 60 days of the end of the taxation year. The credit is not refundable but may be carried forward for seven years or carried back three years. The maximum credit which can be claimed in a single taxation year (including current year and the carry forward or back amounts) cannot exceed $15,000.

Tax credit receipts will be issued by the Department of Finance and must be submitted with the individuals T1 Income Tax return for the year. Investor data report (Excel) to be completed and submitted to reddenkg@gov.ns.ca

Prior to July 1, 2006 investors are required to hold the investment for at least four years; effective July 1, 2006 the hold period for new issues is increased to 5 years. If an investment is disposed of, within this four or five year period, the individual may be required to repay the tax credits earned.