Section 30 of the Small Business Venture Capital Act, authorizes the Venture Capital Tax Credit Program to conduct random examinations of an eligible business corporation's (EBC) records. The majority of EBCs are audited at least once by the Investment Capital Branch's auditors during the time they are registered in the program.
EBCs that are found to be in contravention of the Act may have their registration in the program suspended or revoked. Failure to correct the action that caused the suspension or revocation may result in the government demanding repayment of tax credits issued.
Previous random examinations have identified compliance issues relating to the following EBC requirements:
- An annual return must be filed in accordance with the Act. See section 28.97.
- An EBC must not issue shares that carry 50% or more of the votes for the election of directors of the EBC. See section 28.3 (1) (c).
- An eligible investor (i.e. someone who has received a tax credit) must not own, directly or indirectly, with associates and affiliates, shares carrying 50% or more of the votes for the election of directors of the EBC, or in any way control the EBC. See section 28.5 (1) (c).
- An EBC must not use funds for prohibited purposes. See section 28.93.
- If a tax credit has been issued for a share or convertible right, the EBC must not redeem, acquire or cancel the share within 5 years of the share being issued. See section 28.91.
- An eligible investor (i.e. someone who has received a tax credit) must not dispose of their shares or convertible rights within 5 years of their purchase. See section 28.92.
- An EBC must only issue shares or convertible rights for cash. Shares or convertible rights issued for services rendered or loans converted to shares or convertible rights do not qualify for tax credits. See section 28.3 (1) (d).