Changes to the Small Business Venture Capital Tax Credit Program
The British Columbia Budget 2019 introduced several changes to the Small Business Venture Capital Act (SBVCA) and the Income Tax Act:
1. Investments eligible for the tax credit can be purchased from TFSA's or transferred into TFSA's effective February 20, 2019
2. Eligible Business Activities now include “Advanced Commercialization” and “Scale-Up Activity”
Advanced Commercialization, effective February 2019
For businesses using digital technology tools to assist other business in acquiring or retaining customers through online technologies
Only businesses outside certain districts are eligible
Activities related to development of a business and acquisition of customers by developing brand and identity, marketing content, and other activities related to expanding a qualified business activity
Business are eligible if they have been in a qualifying activity for two years, and at least two years have passed since an EBC first raised equity or a VCC first invested in an ESB
3. Annual Investor Tax Credit Increased from $60,000 to $120,000
$120,000 tax credit available for BC investors who purchase shares on or after February 20, 2019. To obtain the $120,000 tax credit, an investor needs to invest at least $400,000.
No retroactive application, investors that purchased shares prior to February 20, 2019 are limited to $60,000 in tax credit for the associated purchases
4. Eligible Business Corporation (EBC) limit increased to $10 million effective February 20, 2019
Maximum amount an EBC can raise under the tax credit program increased from $5 million to $10 million.
5. Convertible Rights (eg. SAFE) are now included in the definition of “Equity Share”
As of March 2, 2019, convertible rights in EBCs are eligible for tax credits.
At the time of investment, tax credit certificate is issued and the five-year-hold requirement begins
For convertible rights to be eligible, an EBC must be registered prior to issuance. Rights issued prior to registration are not eligible.
Cannot issue convertible rights
As of March 2, 2019, VCC investments in convertible rights of eligible small businesses (ESB) will be an eligible investment at the time of investment and count towards the investment pacing requirements
VCC investments into ESB convertible rights prior to March 2, 2019 will become an eligible investment and count towards the investment pacing requirements as at March 2, 2019
6. Tax Credit Forgiveness starts after shares have been held for two years, down from three years previously, effective February 20, 2019
EBCs exiting the tax credit program or redeeming shares of investors that received tax credits will be eligible for the forgiveness of their tax credit liability after two years instead of three years
VCCs redeeming shares of an investor that received a tax credit will also be eligible for forgiveness of their tax credit liability after two years instead of the previous three years as well
Please contact your Tantelo representative for more details on how these changes may impact your Small Business Venture Capital Tax Credits.