Labour-Sponsored Venture Capital Tax Credit

In December, 2004 the province passed the Labour-Sponsored Venture Capital Tax Credit Act and associated regulations. Under this legislation a provincial personal income tax credit is provided for investments in the common shares of a registered labour-sponsored venture capital corporation (LSVCC) fund.

The 2009 Newfoundland and Labrador budget announced two changes. As of April 1, 2009, the tax credit rate is increased to 20% of the amount paid for LSVCC shares, up from 15%. Also, starting with the 2009 taxation year, the maximum annual eligible investment per investor is increased to $10,000, up from $5,000.

An official tax credit receipt is provided to investors pertaining to their investments under the program, which must be submitted with their T1 income tax return. Should an investor redeem shares prior to the minimum eight year holding period, the tax credits are forfeited.

An LSVCC fund is required to invest in emerging Canadian growth companies with less than $50 million in assets and 500 employees and at least 75% of salaries and wages paid to residents in the province. A minimum of 75% of the funds raised in Newfoundland and Labrador have to be reinvested in this province within three years after the year in which capital is raised.

The provincial legislation contains penalties in order to ensure compliance and timely reinvestment into eligible businesses. Additionally, an LSVCC fund is required to set aside in a trust fund an amount equal to the amount of provincial tax credits issued to eligible investors. If the registration of an LSVCC fund must be revoked, any money remaining in the trust fund is immediately payable to the Crown.

There is one fund registered to date under the provincial Labour-Sponsored Venture Capital Tax Credit program.

The Government of Newfoundland and Labrador does not guarantee any investment under the program.

For more information please contact the Fiscal and Economic Policy Branch.

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