Tax credits are issued only if the eligible business corporations (EBC) raised the equity capital under a pre-approved authorization and is in compliance with the Small Business Venture Capital Act and the Small Business Venture Capital Regulation.
Investors looking to make an investment into an EBC, should request a copy of the EBC's pre-approved authorization to raise tax credit supported investment to ensure the EBC has an authorization in place to raise tax credit supported investment.
Individual investors are entitled to a 30% refundable tax credit, up to an annual maximum tax credit of $120,000. Individual investors who invest in the first 60 days of a calendar year can elect to apply their tax credits to the previous calendar year's tax return.
For example, an investment made February 18, 2023 can be claimed on their 2022 tax return or their 2023 tax return.
Corporate investors are entitled to a 30% non-refundable tax credit, however, there is no annual tax credit limit. Corporate investors can only claim the tax credits in the year of investment.
Both individual and corporate investors can carry unused portions of tax credits forward for four years.
The EBC is required to record investments to the Venture Capital Tax Credit Program's electronic Tax Credit Application (eTCA) system in order for the EBC's investors to receive tax credits.
EBCs must ensure investors complete and sign a share purchase report. These reports must be retained for seven years for audit purposes.
The Venture Capital Tax Credit Program performs extra due diligence when an investor invests $250,000 or more in the EBC. Before tax credit certificates are issued, the EBC must submit to the Venture Capital Tax Credit Program:
- a copy of the investor's Share Purchase Report (PDF, 639 KB)
- a copy of the EBC's bank statement showing the funds deposited
- a current copy of the Central Securities Register
- a copy of the convertible right agreement, if applicable
Tax credit certificates will be available for download as PDFs in eTCA early in the new year. For inquiries, please contact your Portfolio Manager.
The EBC is responsible for distributing the tax credit certificates to its investors.
An investor attaches the tax credit certificate to their income tax return filed with Canada Revenue Agency.
A maximum annual tax credit claim differs for individual investors and corporate investors. However, both may carry forward an unclaimed tax credit amount for four subsequent taxation years.
An individual, referred to in section 2 (1) of the Income Tax Act (B.C.), who is resident in B.C. may claim up to $120,000 in tax credits in one year. An individual investor also has the option of claiming a tax credit for the prior taxation year if the shares were purchased in the first 60 days of the year. The amount claimed is applied toward payment of all income tax amounts due to Canada Revenue Agency with any excess refunded directly to the individual.
If an individual shareholder resides in B.C. at the date of the subscription for shares or a convertible right and yet resides outside the province at year-end, this may affect the individual's ability to claim the tax credit certificate. Individual shareholders who have moved outside B.C. or who are planning to move before year-end are urged to consult with their financial advisers about their eligibility to claim the tax credit certificate.
A corporation, referred to in section 2 (2) of the Income Tax Act (B.C.), that has a permanent establishment in B.C. may claim the tax credit to offset B.C. income tax otherwise payable in a year.
The tax credit issued to a corporate investor is not refundable. There is no annual tax credit limit for corporations. Corporate investors must claim tax credits in the year in which the investment was made.
Claiming a Tax Credit Certificate
Information on claiming a Tax Credit Certificate (TCC) can be found at the following Canada Revenue Agency (CRA) website link.
Important information on claiming a tax credit certificate
The CRA is reporting an error rate of 1% to 2% each year when investors claim tax credits. In order to reduce the possibility of errors when claiming tax credits, and the CRA auditing an investor, investors must ensure they:
- claim a tax credit when filing a tax return only when they have the TCC in hand
- claim the tax credit based on the date of investment on the TCC
- claim the correct tax credit amount, not the investment amount
- If investors made more than one investment in the reporting year, and were issued more than one TCC, then investors should sum the tax credit amount for all TCCs issued and claim that amount
- enter the TCC number for the first investment made in the reporting year, as the form (BC479) only asks for one TCC number
Claim errors may result in the CRA re-assessing an investor’s tax return and result in the CRA applying penalties and interest.
Investors should keep their investment records, including proof of cash investment, for six years, as outlined on the CRA website at the following link.
Investors should contact the EBC or VCC to obtain TCCs and confirmation of share registration.
If the EBC or its investors engage in an ineligible transaction, or is in non-compliance with the Small Business Venture Capital Act, the investor may be required to repay the tax credits. Under section 28.9 (1) of the Act, the EBC and its investors must comply with the following:
- no tax credit has been previously allowed or paid for the shares or convertible rights
- the shares or convertible rights, for which the EBC applies for tax credits, are not a type of security that entitles its holders to claim a tax credit against tax payable under the Income Tax Act (Canada) for the purchase of the security
- the eligible investor shareholders acquire the shares or convertible rights directly from the EBC
A tax credit certificate may be revoked if the administrator determines that, at the time the tax credit certificate was issued, or at a subsequent time, the EBC was in contravention of the Act or the Regulation. A tax credit certificate that is revoked is deemed never to have been issued.
Since the consequences of non-compliance can be serious, program users are urged to consult with your legal and financial advisers.