Budget Bulletin: Corporate Tax Measures

To maintain its commitment to health care, education, and a balanced budget, the Province of Nova Scotia is asking corporations to share in the costs.

LARGE CORPORATION TAX
Effective April 1, 2004, the large corporations tax (often referred to as the capital tax) will be increased to 0.30 per cent from the current rate of 0.25 per cent. The tax is payable by about 1,400 of Nova Scotia's largest corporations, excluding banks and trust companies, based on their taxable paid-up capital (capital stock, retained earnings, and long-term debt). Firms with less than $5 million taxable paid-up capital are not required to pay the tax. Firms that have $5 million to $10 million in taxable paid-up capital pay a phased-in amount. The measure is expected to raise $12.6 million.

CORPORATE CAPITAL TAX ON FINANCIAL INSTITUTIONS
In addition, the corporate capital tax paid by banks and trust companies will be increased from three per cent to four per cent of taxable paid-up capital, effective April 1, 2004. This measure is expected to raise an additional $5 million.

RELIEF FOR SMALL BUSINESS
The province announced in its 2003-04 budget that it will provide for a planned increase in the small business threshold, the maximum ceiling at which the five per cent small business tax rate applies. The 2004-05 budget provides for an acceleration of the planned increase by one year.

The province will follow the formula recently announced in the federal budget to determine the small business limit.

LABOUR SPONSORED VENTURE CAPITAL TAX CREDIT
The Labour Sponsored Venture Capital (LSVCC) tax credit legislation has been extended to Dec. 31, 2009, with some significant new Nova Scotia content criteria. The organization that is being invested in must have a head office in the province, must employ at least three full-time residents, must pay at least 75 per cent of its salaries and wages in Nova Scotia, and must have the majority of its principal decision makers residing in the province.

LSVCCs that are currently registered -- that do not meet these criteria -- can no longer be registered for tax credit purposes. They can still operate in the province but they can no longer sell investments that qualify for a provincial tax credit. Current LSVCC investors will not be affected and LSVCCs currently registered must meet investment targets.

In addition to the eligibility criteria, the tax credit will rise to 20 per cent (from 15 per cent) and the investment limit will be raised to $5,000 per year (from $3,500). Under the new rules, LSVCCs must reinvest 70 per cent of the funds raised in a calender year within two years of the end of that calender year and 80 per cent within three years. For example, an LSVCC formed this year must reinvest 70 per cent of the funds raised in 2006 by the end of 2008, and 80 per cent by the end of 2009.

NOTE: For further 2004-05 budget information, see the Department of Finance website at www.gov.ns.ca/finance .