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SNL2004 CHAPTER L-1.1

LABOUR-SPONSORED VENTURE CAPITAL TAX CREDIT ACT

Amended:

2009 c4; 2011 c3

CHAPTER L-1.1

AN ACT RESPECTING LABOUR-SPONSORED VENTURE CAPITAL TAX CREDITS

(Assented to December 16, 2004 )

Analysis




Be it enacted by the Lieutenant-Governor and House of Assembly in Legislative Session convened, as follows:

Short title

        1. This Act may be cited as the Labour-Sponsored Venture Capital Tax Credit Act .

2004 cL-1.1 s1

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Definitions

        2. In this Act

             (a)  "active business" means a business carried on in Canada , other than a specified investment business or a personal services business as defined in the Income Tax Act (Canada );

             (b)  "corporation" means a taxable corporation incorporated under the laws of the province, another province of Canada or Canada ;

             (c)  "eligible investor" means an individual who is a resident of the province, who is at least 19 years of age, and who

                      (i)  subscribes for an eligible share,

                     (ii)  makes contributions to a trust that is governed by a Registered Retirement Savings Plan and those contributions, and no other funds, can reasonably be considered to have been used by the trust to acquire or subscribe for an eligible share, and the annuitant under the plan is the individual or a spouse of the individual, or

                    (iii)  makes contributions to a trust that is governed by a Tax-Free Savings Account and those contributions, and no other funds, can reasonably be considered to have been used by the trust to acquire or subscribe for an eligible share;

             (d)  "eligible shares" means fully paid, newly issued voting common shares of the labour-sponsored venture capital corporation, issued on or before December 31, 2014, that are non-redeemable, non-convertible, not restricted in profit sharing or participation upon dissolution and not eligible for a tax credit allowed under the Income Tax Act (Canada), other than under subsection 127.4(2), or a deduction from income under that Act, other than a deduction under subsection 146(5) of that Act;

             (e)  "labour-sponsored venture capital corporation" means a corporation registered under subsection 204.81(1) of the Income Tax Act (Canada) that has subsequently been registered by the minister under this Act; and

              (f)  "minister" means the minister appointed under the Executive Council Act to administer this Act.

2004 cL-1.1 s2; 2011 c3 s1

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Share excluded

        3. Notwithstanding paragraph 2(c), an eligible share does not include a share that, in the opinion of the minister, is or will be issued as a result of a transaction or event or a series of transactions or events the main purpose of which is to claim the tax credit under this Act.

2004 cL-1.1 s3

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Registration of labour-sponsored venture capital corporation

        4. (1) A corporation that intends to make an issue of eligible shares to an eligible investor on or before December 31, 2014, and that meets the criteria prescribed by regulation may apply for registration under this Act by delivering to the minister, in a form acceptable to him or her, an application containing the information required by the minister.

             (2)  The minister may, in his or her absolute discretion, register a labour-sponsored venture capital corporation, with conditions that the minister considers appropriate, on being satisfied that

             (a)  the corporation meets the criteria prescribed by regulation; and

             (b)  the issue of eligible shares complies or will comply with the purpose of this Act.

             (3)  Where the minister registers a labour-sponsored venture capital corporation, the minister shall issue a certificate of registration.

             (4)  The certificate of registration constitutes approval as of the date of registration, for the labour-sponsored venture capital corporation to raise the equity capital referred to in the application.

2004 cL-1.1 s4

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Revocation of certificate of registration

        5. The minister may, at any time after a certificate of registration has been issued, suspend the issuance of provincial tax credits respecting a labour-sponsored venture capital corporation or revoke the certificate where

             (a)  in the opinion of the minister, the registered labour-sponsored venture capital corporation has not complied with a provision of this Act or the regulations or the purpose of this Act and the regulations;

             (b)  the labour-sponsored venture capital corporation has been suspended or otherwise restricted from issuing shares; or

             (c)  the labour-sponsored venture capital corporation has failed to meet another condition required for registration.

2004 cL-1.1 s5

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Pena lty

        6. (1) In each year, the minister shall impose a penalty, at a rate of 3% per year of the labour-sponsored venture capital corporation’s cumulative investment shortfall, where an investment shortfall occurs that is the difference between the cumulative amount of capital that is required to be invested in eligible business entities by year end, as prescribed by the regulations, less amounts that actually were invested in eligible business entities.

             (2)  The labour-sponsored venture capital corporation is required to pay the penalty under subsection (1) within 90 days of the end of the year in which the investment shortfall occurred and to which the penalty relates.

             (3)  Where a labour-sponsored venture capital corporation is required to pay a penalty under subsection (1), the minister may assess interest from the date that the payment is required to be made to the date the payment is made, at a rate prescribed by regulation.

             (4)  The minister may remit a penalty under this section provided that the labour-sponsored venture capital corporation submits a plan satisfactory to the minister, to meet the investment requirements under the regulations, and executes that plan to the satisfaction of the minister.

             (5)  Where the minister has remitted a penalty under subsection (4), he or she shall refund the amount paid.

2004 cL-1.1 s6

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Labour-Sponsored Venture Capital Corporation Trust

        7. (1) A labour-sponsored venture capital corporation shall set aside in a trust fund an amount of money equal to the amount of the tax credits issued to eligible investors.

             (2)  The labour-sponsored venture capital corporation shall appoint a trustee acceptable to the minister to administer the trust and the trustee shall hold the trust fund in trust jointly, to be dealt with in accordance with this section, for

             (a)  the labour-sponsored venture capital corporation; and

             (b)  the Crown.

             (3)  Where the certificate of registration of a labour-sponsored venture capital corporation is revoked, money then remaining in the trust fund established under subsection (1) is immediately payable to the Crown.

             (4)  A trustee who fails to make the payment to the Crown required by subsection (3) is liable to the Crown for the amount required to be paid under that subsection.

             (5)  Where a labour-sponsored venture capital corporation has invested in an eligible business entity, the trustee may pay over to the labour-sponsored venture capital corporation fund, from the trust fund, an amount prescribed by regulation.

             (6)  Money held in trust under subsection (1) shall not be paid out to a person unless the minister consents in writing to that payment.

2004 cL-1.1 s7

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Tax credit certificate

        8. (1) Where a registered labour-sponsored venture capital corporation has made an issue of eligible shares to an eligible investor,

             (a)  upon application from the labour-sponsored venture capital corporation for tax credit certificates for eligible investors, the minister shall issue tax credit certificates, entitling each of the eligible investors to a tax credit equal to 20% of the amount received by the labour-sponsored venture capital corporation in that calendar year, or within 60 days of the end of the calendar year, for shares issued to those eligible investors as part of the issue of shares by the labour-sponsored venture capital corporation; and

             (b)  notwithstanding paragraph (a), the minister may authorize the labour-sponsored venture capital corporation to issue tax credit certificates to eligible investors.

             (2)  The minister may refuse to issue or limit the amount on a tax credit certificate under subsection (1) unless the minister is satisfied that

             (a)  the labour-sponsored venture capital corporation and its eligible investors are complying with this Act;

             (b)  the eligible shares do not constitute the type of security that entitles the holder, in respect of the acquisition of those shares,

                      (i)  to claim a tax credit under the Income Tax Act (Canada ), other than under subsection 127.4(2), against income tax payable,

                     (ii)  to claim a deduction from income under the Income Tax Act, 2000 or the Income Tax Act (Canada) other than a deduction under subsection 146(5) of the Income Tax Act (Canada), or

                    (iii)  to receive other financial assistance from a government, municipality or public authority;

             (c)  no tax credit has previously been allowed for those shares under the Income Tax Act, 2000 or the Income Tax Act (Canada );

             (d)  the aggregate investment in eligible shares, for which entitlements to tax credit certificates the eligible investor has applied for in the year, does not exceed $10,000;

             (e)  the aggregate of all tax credits under this Act for the year does not exceed the amount, if any, prescribed by regulation;

              (f)  other prescribed conditions have been met; and

             (g)  the labour-sponsored venture capital corporation or its directors, officers or shareholders are not conducting their business or affairs in a manner that is contrary to the purpose of this Act and the regulations.

             (3)  Notwithstanding subsection (1) and paragraph (2)(d),

             (a)  a tax credit issued by the minister within 60 days of December 31, 2004, may not be applied to taxes payable under the Income Tax Act, 2000 in the 2004 taxation year; and

             (b)  for the 2005 taxation year, the aggregate of all entitlements in respect of the eligible investor for all tax credit certificates applied for in the year does not exceed

                      (i)  the lesser of 15% of the amount received by t he labour-sponsored venture capital corporation for eligible shares issued within 60 days of December 31, 2004 and $750, plus

                     (ii)  $750.

2004 cL-1.1 s8; 2009 c4 s1

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Payment to minister where no entitlement and repayment

        9. (1) Where a person has received, directly or indirectly, the benefit of a tax credit to which the person is not entitled, the amount of the benefit is payable immediately by that person to the minister.

             (2)  A person who disposes of a share, in respect of which a tax credit has been allowed, within 8 years from the date of purchase shall pay to the minister

             (a)  an amount equal to the tax credits received in respect of those shares, including interest, where prescribed by regulation; or

             (b)  a lesser amount determined under the regulations in prescribed circumstances.

             (3)  Where a director or officer of a labour-sponsored venture capital corporation, a member of a group that controls the labour-sponsored venture capital corporation or a shareholder that controls the labour-sponsored venture capital corporation permits or acquiesces to a transaction or event or a series of transactions or events that the person knew or ought to have known would cause the certificate of registration to be revoked, that person is jointly and individually liable for the payment under subsection (2).

             (4)  An amount required to be paid to the minister under this Act is a debt due to Her Majesty in right of the province.

2004 cL-1.1 s9

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Register

      10. The minister shall make public the name and address of a corporation that has been registered or a corporation whose registration has been revoked, as well as other information the minister may consider necessary.

2004 cL-1.1 s10

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Filing of returns with minister

      11. Within 180 days after the end of each of the fiscal years commencing with the fiscal year of registration, and continuing for 8 years after the final sale of eligible shares in the province, a labour-sponsored venture capital corporation shall file a return with the minister setting out the information as required by the minister.

2004 cL-1.1 s11

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Maintenance and location of records

      12. (1) A labour-sponsored venture capital corporation that is registered under this Act shall maintain records in the form and containing the information the minister considers necessary to determine that this Act and the regulations are being complied with.

             (2)  The labour-sponsored venture capital corporation shall keep the records at its provincial office or at other places approved by the minister.

2004 cL-1.1 s12

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Appointment of inspectors

      13. (1) The minister may appoint or designate persons or a class of persons as inspectors for the purposes of this Act and the regulations.

             (2)  The minister may authorize a person employed in the department or a person or class of persons designated under subsection (1) to perform and exercise those duties imposed and powers conferred by this Act upon the minister that may, in the opinion of the minister, be conveniently performed or exercised by that person and the performance or exercise of those duties or powers by the person so authorized shall be of the same effect as if they were performed or exercised by the minister.

2004 cL-1.1 s13

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Inspection of records

      14. (1) For the purpose of determining compliance with this Act, an inspector may, during normal business hours, make an examination of the books of account, records, financial statements or other documents of

             (a)  a labour-sponsored venture capital corporation that is registered under this Act;

             (b)  a person who is or was a shareholder of the labour-sponsored venture capital corporation; and

             (c)  an eligible business entity.

             (2)  In the course of an examination under subsection (1), the inspector may make copies of those books of account, records, financial statements or other documents.

2004 cL-1.1 s14

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Considered refusal

      15. Where the minister does not register a labour-sponsored venture capital corporation within 90 days after receipt of the application, the minister is considered to have refused to register it.

2004 cL-1.1 s15

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Extension of time

      16. The minister may extend, with or without conditions, the time limit for the doing of anything under this Act or the regulations and may grant the extension notwithstanding that the time limit to be extended has expired.

2004 cL-1.1 s16

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Offences and penalty

      17. (1) A person is guilty of an offence who

             (a)  refuses or wilfully neglects to produce, as required under this Act, books of account, records, financial statements or other documents to a person entitled under this Act to inspect, examine or audit them;

             (b)  refuses or wilfully neglects to answer a question put to him or her by a person entitled under this Act to ask that question relating to a matter for which an answer is required under this Act;

             (c)  refuses or wilfully neglects to file a return or make a report required from him or her under this Act;

             (d)  files or makes a false or misleading return or report or gives false or misleading answers or information in a return or report under this Act, or makes a false or misleading answer to a question put to him or her by a person entitled to do so relating to a matter concerning which he or she is required under this Act to answer;

             (e)  destroys, alters, mutilates, secretes or disposes of books of account, records, financial statements or other documents required to be kept under this Act;

              (f)  fails to produce for inspection when requested to do so, books of account, records, financial statements or other documents; or

             (g)  makes, permits, assents to, or acquiesces in, the making of false or misleading entries or omissions in the books of account, records or documents required to be kept under this Act.

             (2)  Where a labour-sponsored venture capital corporation registered under this Act is guilty of an offence under subsection (1),

             (a)  the labour-sponsored venture capital corporation is liable on summary convi ction to a fine of not less than $5,000 and not more than $100,000; and

             (b)  every director or officer of the labour-sponsored venture capital corporation who authorized, permitted or acquiesced in the offence is guilty of an offence and is liable on summary conviction to the penalties provided for the offence whether or not the labour-sponsored venture capital corporation has been prosecuted or convicted.

2004 cL-1.1 s17

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Regulations

      18. (1) The Lieutenant-Governor in Council may make regulations

             (a)  requiring a person to supply information or returns respecting a matter required in determining compliance with this Act;

             (b)  defining a word or expression used but not defined in this Act;

             (c)  prescribing criteria for registration of labour-sponsored venture capital corporations;

             (d)  prescribing the time period for investment of capital by the labour-sponsored venture capital corporation into eligible business entities;

             (e)  prescribing a maximum amount of tax credits to be issued in a year in respect of a labour-sponsored venture capital corporation;

              (f)  prescribing conditions relating to the repayment of tax credits where an eligible investor has not complied with this Act;

             (g)  prescribing the time period for filing returns or any other information required to be filed under the Act;

             (h)  prescribing the manner and method of calculating interest on an amount due under the Act and unpaid;

              (i)  prescribing the amount that may be paid to the labour-sponsored venture capital corporation from the trust funds; and

              (j)  to generally carry out the purpose of this Act.

             (2)  Regulations under this section may be made retroactive to January 1, 2005 .

2004 cL-1.1 s18