Tax Credit Changes Support Nova Scotia Business

The government of Nova Scotia has introduced new regulations to ensure that Nova Scotia investments in Labour Sponsored Venture Capital Corporations provide more support to businesses and workers in the province.

"This is all about using Nova Scotia dollars to create Nova Scotia jobs," said Finance Minister Peter Christie. "Tax credits for venture capital investments will be more focused on generating funds for Nova Scotia companies."

Labour Sponsored Venture Capital Corporations (LSVCCs) were created in the early 1990s to encourage investment in venture capital in Canada. Canadian investors get tax credits from both federal and provincial governments for investments in LSVCCs. The LSVCCs use the funds generated to provide venture capital for eligible Canadian businesses.

Nova Scotia's new equity tax credit regulations follow amendments to the Equity Tax Credit Act and the Nova Scotia Income Tax Act made in the spring.

For investors to qualify for the Nova Scotia tax credit, the LSVCCs must now have a local base of operations and target their investments to Nova Scotia companies: -- 75 per cent of an LSVCC's salaries and wages must be paid in Nova Scotia or 90 per cent in Atlantic Canada (including affiliates); -- and principal decision-makers must reside in Atlantic Canada.

Companies receiving LSVCC investments must have at least 75 per cent of salaries and wages paid in Nova Scotia.

For individual investors, the tax credit amount will also increase under the Income Tax Act. The tax credit for investments made after Jan. 1, 2005, increases to 20 per cent from 15 per cent, on a maximum investment of $5,000 (up from $3,500).

The changes follow an analysis of LSVCC investments over the last 10 years. That analysis shows the funds gathered by LSVCCs in Nova Scotia have not been successful at promoting economic development in Nova Scotia.

As of November 2002, Labour Sponsored Venture Capital Corporations had invested some $21 million in eight Nova Scotia businesses at various times. At present, only $3 million is actively invested in Nova Scotia-controlled businesses. During the same period, the government has provided investors $12 million in Nova Scotia tax credits.

"These new regulations are designed to ensure funds put down roots in our region," said Mr. Christie. "The changes should help generate more capital for businesses and more employment for workers here in Nova Scotia."

Similar regulations are in place in Quebec, British Columbia, Saskatchewan and Manitoba. In Manitoba, investments under a similar system have created a quarter of a billion dollars in venture capital for local businesses.

The eight existing Labour Sponsored Venture Capital Corporations may continue operating in Nova Scotia and qualify investors for the federal tax credit. However, they must comply with the new equity tax credit regulations in Nova Scotia to qualify for the Nova Scotia tax credit. The changes do not affect individual investments made to date.

The new regulations went into effect on Wednesday, Sept. 8.