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Newfoundland and Labrador
Regulation 2004


NEWFOUNDLAND AND LABRADOR REGULATION 71/04

NEWFOUNDLAND AND LABRADOR
REGULATION 71/04

Direct Equity Tax Credit Regulations (Amendment)
under the
Income Tax Act, 2000
(O.C. 2004-266)

(Filed July 9, 2004)

Under the authority of subsection 46(5) of the Income Tax Act, 2000, the Lieutenant-Governor in Council makes the following regulations.

Dated at St. Johnís, June 28, 2004

Robert C. Thompson
Clerk of the Executive Council

REGULATIONS

Analysis


††††††† 1. S.2 Amdt.
Definitions

††††††† 2.†† S.5 Amdt.
Revocation of certificate of registration

††††††† 3.†† S.6 Amdt.
Qualifying business activities

††††††† 4.†† S.7 Amdt.
Constraints on shares

††††††† 5.†† S.8 Amdt.
Prohibited use of funds

††††††† 6.†† S.9 Amdt.
Application for tax credit receipt

††††††† 7.†† S.11 R&S
Recovery where no entitlement

††††††† 8.†† S.12 R&S
12.†† Redemption of share
12.1 Transfer of credit on
††††††† winding-up or
††††††† amalgamation

††††††† 9.†† S.13 R&S
Non refundable tax credit

††††† 10. Commencement


NLR 26/01

††††††† 1. (1) Section 2 of the Direct Equity Tax Credit Regulations is amended by adding immediately after paragraph (b) the following:

††††††††† (b.1)"arm's length" means arm's length as defined in section 251 of the Income Tax Act (Canada);

†††††††††††† (2)Section 2 of the regulations is amended by adding immediately after paragraph (d) the following:

††††††††† (d.1)"corporate investor" means an armís length corporation;

†††††††††††† (3)Subparagraph 2(e)(v) of the regulations is repealed and the following substituted:

†††††††††††††††††††† (v)has less than $20,000,000 in assets, including assets of associated corporations,

†††††††††††† (4)Paragraph 2(f) of the regulations is repealed and the following substituted:

††††††††††††† (f)"eligible investor" means

††††††††††††††††††††† (i)an individual investor, or

†††††††††††††††††††† (ii)a corporate investor,

that invests in eligible shares of an eligible business;

†††††††††††† (5)Section 2 of the regulations is amended by adding immediately after paragraph (g) the following:

††††††††† (g.1)"individual investor" means an individual 19 years of age or older;

†††††††††††† (6)Paragraph 2(i) of the regulations is repealed and the following substituted:

††††††††††††† (i)"replacement share" means a share purchased as a replacement for another share of an eligible business that

††††††††††††††††††††† (i)an individual investor may have disposed of after March 22, 2000, or

†††††††††††††††††††† (ii)a corporate investor may have disposed of after March 27, 2003,

and before the issue of the eligible shares in that business;

†††††††††††† (7)Paragraphs 2(n) and (o) of the regulations are repealed and the following substituted:

†††††††††††† (n)"tax credit receipt" means a tax credit receipt issued by the minister under section 9; and

†††††††††††† (o)"tax otherwise payable" means the amount that would, except for these regulations and the deduction allowed under section 40.1 of the Act, be the tax otherwise payable under the Act.

 

††††††† 2. (1) Subsection 5(1) of the regulations is amended

†††††††††††† (a)by adding the word "or" immediately after paragraph (b);

†††††††††††† (b)by striking out the word "or" and the semicolon at the end of paragraph (c) and substituting a period; and

†††††††††††† (c)by repealing paragraph (d).

†††††††††††† (2)Subsection 5(2) of the regulations is repealed and the following substituted:

†††††††††††† (2)Where the minister revokes a certificate of registration after a specified issue has occurred with respect to an eligible business

†††††††††††† (a)where tax credit receipts have been issued, the eligible business is liable for and shall immediately pay to the minister an amount equal to the aggregate of the amounts of the tax credit receipts issued for that eligible business; and

†††††††††††† (b)where tax credit receipts have not been issued, the minister shall not issue tax credit receipts with respect to that eligible business.

†††††††††††† (3)Subsection 5(3) of the regulations is repealed and the following substituted:

†††††††††††† (3)An eligible business that does not utilise all of the capital raised from the specified issue for qualifying business activities within 2 years from the date upon which the certificate of registration is issued shall immediately pay to the minister an amount of money equal to

A x B/C

where "A" equals the amount of all tax credits for which tax credit receipts have been issued for the specified issue, "B" equals the capital not utilised for qualifying business activities and "C" equals the total capital raised from the specified issue.

 

††††††† 3. (1) Subsection 6(1) of the regulations is amended by striking out the word "and" at the end of paragraph (i) and substituting the word "or".

†††††††††††† (2)Subsection 6(2) of the regulations is amended by striking out the word "and" at the end of paragraph (h) and substituting the word "or".

 

††††††† 4. (1) Subsection 7(2) of the regulations is amended by striking out the words "tax credit certificate" and substituting the words "tax credit receipt".

†††††††††††† (2)Subsection 7(3) of the regulations is repealed.

 

††††††† 5. Section 8 of the regulations is amended by striking out the word "and" at the end of paragraph (f) and substituting the word "or".

 

††††††† 6. (1) Subsection 9(1) of the regulations is amended by striking out the words "tax credit certificate" and substituting the words "tax credit receipt".

†††††††††††† (2)Subsection 9(2) of the regulations is amended by striking out the words "tax credit certificate" and substituting the words "tax credit receipt".

†††††††††††† (3)Subsection 9(4) of the regulations is amended by striking out the words "tax credit certificate" where they twice occur and substituting the words "tax credit receipt".

†††††††††††† (4)Subsection 9(5) of the regulations is amended by striking out the words "tax credit certificate" wherever they occur and substituting the words "tax credit receipt".

 

††††††† 7. Section 11 of the regulations is repealed and the following substituted:

Recovery where no entitlement

††††† 11. Where an eligible investor receives, directly or indirectly, the benefit of all or a part of a tax credit that the eligible investor is not entitled to, the eligible investor shall pay the amount of the benefit to the minister.

 

††††††† 8. Section 12 of the regulations is repealed and the following substituted:

Redemption of share

††††† 12. An eligible business that redeems an eligible share for which a tax credit has been allowed within 5 years after the date of issue of that share, shall pay to the minister a penalty in an amount equal to the tax credit allowed with respect to the share plus interest at the rate prescribed under the federal Act.

Transfer of credit on winding-up or amalgamation

†† 12.1 (1) Where a corporate investor is wound-up into its parent corporation, or amalgamated,

†††††††††††† (a)the shares of the corporate investor are considered not to have been disposed of; and

†††††††††††† (b)an unused tax credit is considered to have been acquired by the parent, or amalgamated, corporation.

†††††††††††† (2)For the purpose of subsection 13(4), the acquisition by the parent, or amalgamated, corporation is considered to have occurred in the taxation year in which the tax credit was originally issued to the corporate investor.

†††††††††††† (3)Where a corporate investor amalgamates with an eligible business from whom it acquired eligible shares of the corporate investor, the eligible shares are considered to have been redeemed.

 

††††††† 9. Section 13 of the regulations is repealed and the following substituted:

Non refundable tax credit

††††† 13. (1) Where, for a taxation year, an eligible investor has been issued a tax credit receipt, there shall be deducted from the tax otherwise payable by the eligible investor under the Act for that taxation year, the lesser of

†††††††††††† (a)the tax otherwise payable;

†††††††††††† (b)the amount specified in a tax credit receipt or receipts issued during the year and amounts carried forward or back from another year in accordance with subsection (4); or

†††††††††††† (c)$50,000.

†††††††††††† (2)An eligible investor who is entitled to a deduction under this section shall file, with the eligible investor's annual return for a taxation year in which a deduction is claimed under this section, a copy of the tax credit receipt to which the deduction relates.

†††††††††††† (3)A deduction made under this section may be made with respect to eligible shares acquired and paid for by an eligible investor in the taxation year for which the deduction is claimed or where the eligible shares are acquired not more than 60 days after the taxation year for which the deduction is claimed.

†††††††††††† (4)Where an eligible investor has been issued a tax credit receipt under these regulations and the amount specified in the tax credit receipt or receipts issued during the year exceeds the lesser of

†††††††††††† (a)the tax otherwise payable; and

†††††††††††† (b)$50,000,

the eligible investor may carry forward any unused balance to any of 7 subsequent tax years or carry back the amount to any of 3 preceding tax years, provided that

†††††††††††† (c)in the case of an individual investor, it is not carried back to a taxation year that precedes the year 2000; and

†††††††††††† (d)in the case of a corporate investor, it is not carried back to a taxation year that ended before April 1, 2004.

Commencement

††††† 10. These regulations, with the exception of subsection 13(4) of the Direct Equity Tax Regulations contained in section 9 of these regulations, are considered to have come into force on April 1, 2004.