Budget Bulletin: Tax Measures

HIGHER THRESHOLD FOR SMALL BUSINESS TAX RATE

Small businesses in Nova Scotia will have more room to earn taxable income before moving to a higher tax rate.

Effective the 2003 taxation year, the limit under which the small business tax rate (5 per cent) applies will be increased to $225,000. The limit will be increased for each of the next three years and by 2006 will be $300,000.

This measure could save a qualifying small business as much as $2,750 in 2003 and, once fully implemented, could save that business as much as $11,000. The small business rate currently applies to the first $200,000 of taxable income of an active business. When taxable income exceeds $200,000, the tax rate rises to 16 per cent. Extending the threshold to $225,000 brings the province in line with the federal limit. This measure applies to Canadian-controlled private corporations in the same manner as the federal small business deduction.

THREE-YEAR EXTENSION FOR EQUITY TAX CREDIT AND COMMUNITY ECONOMIC
DEVELOPMENT INVESTMENT FUND PROGRAM

The Equity Tax Credit will be extended three years to December 31, 2006, and the individual investment limit will be increased to $50,000, up from the current limit of $30,000 annually. The credit encourages Nova Scotians to invest in small and medium- sized corporations and co-operatives by offering a 30 per cent non-refundable provincial tax credit on qualified investments. In addition to meeting eligibility criteria, businesses must also comply with the Securities Act.

A Community Economic Development Investment Fund (CEDIF) is granted an exemption under the Securities Act, which enables the community-focused fund to solicit the public to purchase shares and raise more capital. These shares also automatically qualify for Registered Retirement Savings Plans and increase the allowable foreign-content holdings limit within an RRSP.

Since 1994, the two programs have helped more than 300 diversified businesses throughout the province raise in excess of $54 million from more than 5,000 investors. These businesses create meaningful jobs and generate new tax revenues that help provide better schools, improved roads, and important health-care services to Nova Scotians.

In addition to the three-year extension to December 31, 2006 and the increase in the annual limit, other administrative changes include: -- relief from mandatory annual report filing for private companies -- discretionary relief on the four-year hold period for investors -- refundable penalties for Community Economic Development Investment Funds that do not meet investment of proceeds requirements -- making the Community Economic Development Investment Fund 20 per cent conditional on the fund's meeting the requirements of the act.

ONE-YEAR EXTENSION TO LABOUR SPONSORED VENTURE CAPITAL
CORPORATION TAX CREDIT

The Labour Sponsored Venture Capital Corporation (LSVCC) tax credit will be extended one year to December 31, 2004. The credit is a combined provincial and federal non-refundable 30 per cent tax credit on investments in the funds. The funds in turn must invest a percentage of the proceeds in Nova Scotia businesses.

There are currently seven Labour Sponsored Venture Capital Corporations offering funds in Nova Scotia. Among the changes:

• Limits have been placed on the funds' investments in pubic companies.
• Credits on investment rollovers have been eliminated.
• Investment requirements now flow through to businesses invested in by the LSVCC.

During this one-year extension, the province will continue to look for new ways to help small and medium-sized businesses find the money they need to grow and expand.

LARGE CORPORATIONS TAX EXTENDED

The Large Corporations Capital Tax will be extended another two years to March 31, 2006. This tax applies to about 1,040 of the largest of Nova Scotia's 24,000 corporations. The tax is levied on taxable paid-up capital in excess of $5 million, with a special phase-in for companies between $5 million and $10 million.

TAX CREDIT FOR CAREGIVERS

Effective this year, the maximum amount of tax relief available to Nova Scotians who provide care for sick or injured family members has been increased from $223 to $408, an increase of 75 per cent.

NOTE: For further 2003-04 budget information, visit the Department of Finance Web site at www.gov.ns.ca/finance .