Nova Scotia Department of Finance
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Nova Scotia Labour-Sponsored Venture-Capital Tax Credit


Introduction

Introduced in the September 30, 1993 Budget Address, the Labour - sponsored venture - capital tax credit is designed to assist Nova Scotia small and medium sized businesses and co-operatives in obtaining equity financing by offering a personal income tax credit to individuals investing in registered labour - sponsored venture - capital corporations, or LSVCC's. The LSVCC tax credit has been incorporated as part of the Equity Tax Credit (ETC) Act. Equity financing is an alternative to other forms of financing such as debt and traditional government assistance.

The credits are not grants nor are they considered to be tax shelters.

Interpretation Bulletin
• Equity Tax Credit Regulation Changes - September 2004

Eligible Investors

The LSVCC tax 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.

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

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 or a federal LSVCC tax credit.

What is an LSVCC?

An LSVCC is a corporation that has been sponsored by a trade union for the purpose of assisting eligible businesses in creating and maintaining employment. The LSVCC raises venture capital by issuing shares to the public. This capital is, in turn, invested in eligible businesses through equity financing or, in certain cases, subordinate debt obligations.

Eligible LSVCC's

Eligible LSVCC's must be registered with the Minister of Finance. To become registered, LSVCC's must make application with the Minister and meet the following criteria:

  • At least 75% of all salaries and wages paid by the corporation and any affiliate of the corporation are paid to residents of the Province or at least 90% of all salaries and wages paid by the corporation and any affiliate of the corporation are paid to residents of one of the Atlantic Provinces;
  • The corporation together with any affiliate of the corporation employs 3 or more employees who are residents of one of the Atlantic Provinces and whose combined total paid hours of employment are not less than 3900 in a 12 month period, or in the case of a short taxation year, an equivalent amount pro-rated;
  • The majority of the senior officers and directors of the corporation and any affiliate of the corporation are residents of one of the Atlantic Provinces.
  • not previously carried on business, other than to obtain registration under the ETC Act,
  • the corporation has or will have equity capital of at least $25,000,
  • the corporation has authorized capital consisting of shares of one class without par value that cannot be redeemed or purchased,
  • the business of the corporation is restricted by it's constitution to assisting businesses in creating and maintaining employment by making specified investments, exercising ownership rights with respect to investments made and to providing administrative support necessary to carry on the business of the corporation,
  • the corporation is incorporated by a trade union that has filed it's constitution and by-laws with the Minister of Labour,
  • the majority of the Members of the Board of Directors are appointed by the trade union, and only the trade union can remove or replace those members
  • at least two board members are elected from the general shareholders.

Application

An LSVCC must make application to the Department of Finance to obtain a Certificate of Registration, whether or not they are registered federally. 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.

Application forms for LSVCC's can be obtained from the Department of Finance. In addition to the application form, the following information must be included:

  • a copy of the articles of association or constitution of the corporation,
  • a list of the Board of Directors of the corporation including names, addresses and background information,
  • an investment plan detailing the amount to be raised by the specified issue and the criteria upon which investments will be made,
  • the name of the sponsoring trade union and a copy of its constitution and bylaws as filed with the Minister of Labour

Tax Credit

In 2005, the tax credit is calculated at 20% of the investment made by the individual to a maximum annual investment of $5,000 (maximum annual tax credit of $1,000). 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 and cannot be carried forward to future years. The individual must have sufficient tax payable in the year or the credit will be lost.

Investors are required to hold the investment for at least eight years. If an investment is disposed of, within this eight year period, the individual may be required to repay the tax credits earned.

Regulations
• www.gov.ns.ca/just/regulations/regs/etcregs.htm

Act
• www.gov.ns.ca/legislature/legc/