Tax credits are issued only if the 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.
Individual investors are entitled to a 30% refundable tax credit, up to an annual maximum tax credit of $60,000. 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.
eg. An investment made February 18, 2016 can be claimed on their 2015 tax return or their 2016 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 Investment Capital Branch's electronic Tax Credit Application (eTCA) in order for the EBC's investors to receive tax credits.
EBC's must ensure investors complete and sign a Share Purchase Report. These reports must be retained for seven years for audit purposes.
The Investment Capital Branch performs extra due diligence when an investor invests $200,000 or more in the EBC. Before Tax Credit Certificates are issued, the EBC must submit to the Investment Capital Branch:
- a copy of the investor's Share Purchase Report
- a copy of the EBC's bank statement showing the funds deposited
- a current copy of the Central Securities Register
Tax credit certificates will be available for download in the eTCA in PDF early in the new year. The EBC will receive an automated email indicating the tax credit certificates are available.
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 for the taxation year stated on the certificate.
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 (British Columbia), who is resident in British Columbia may claim up to $60,000 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 British Columbia at the date of the subscription for shares 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 British Columbia or who are planning to move before year-end are urged to consult with their financial advisors about their eligibility to claim the tax credit certificate.
A corporation, referred to in section 2 (2) of the Income Tax Act (British Columbia), that has a permanent establishment in British Columbia may claim the tax credit to offset British Columbia 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.
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 28.95 (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
- the shares, 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 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 advisors.