Alberta Investor Tax Credits Regulation

(Consolidated up to 186/2019) ALBERTA REGULATION 203/2016 Investing in a Diversified Alberta Economy Act ALBERTA INVESTOR TAX CREDITS REGULATION Table of Contents 1 Definitions and interpretation 2 Equity share — prescribed rights 3 Eligible business corporation — permitted share transfers 4 Minimum capital requirements 5 Additional conditions for registration 6 Register to contain additional information 7 Calculation period 8 Deemed amount of investment 9 Small business — number of employees 10 Prescribed percentage of wages 11 Determination of wages and salaries 12 Business activities 13 Prescribed aggregate amount 14 Annual expense limits 15 Calculation re section 20(9) of the Act 15.1 Application deadline 15.2 Diversity and inclusion program 17 Notice to Minister 18 Prescribed amount 19 Fair market value 20 Other prohibited investments 21 Other permitted investments 22 Permitted investment in a security 23 Reporting requirements 24 Cancellation of tax credit certificate 25 Coming into force Definitions and interpretation 1 (1) In this Regulation, “Act” means the Investing in a Diversified Alberta Economy Act . (2) In the Act and this Regulation, (a) “cash” and “money” mean lawful currency of Canada; (b) “common interest group”, in relation to a corporation, means 2 or more persons, whether or not associated or affiliated, who, pursuant to an agreement, commitment or understanding, exercise, or intend to exercise, in concert, any rights attached to or associated with their shares. (3) A shareholder of a venture capital corporation who is receiving, or is proposed to receive, any fees or remuneration from the venture capital corporation or whose associate or affiliate is receiving, or is proposed to receive, any fees or remuneration from the venture capital corporation is deemed to be not entitled to vote in person or by proxy at a general meeting in respect of an ordinary resolution to approve or ratify the payment of any fees or remuneration by the venture capital corporation. (4) A debt instrument that meets all of the following criteria is hereby prescribed as an investment that is an eligible investment for the purposes of the definition of “eligible investment” in section 2(1)(h) of the Act: (a) if the debt instrument is secured by property, the property has a value that does not exceed 50% of the amount of the indebtedness under the debt instrument at the time of the investment; (b) the debt instrument does not (i) restrict the borrower from incurring other indebtedness, or (ii) penalize the borrower for incurring other indebtedness; (c) the outstanding balance from time to time under the debt instrument bears interest at a rate not exceeding 12% per annum, calculated semi‑annually not in advance; (d) the debt instrument will be converted within 18 months after its issuance into one or more equity shares issued by a small business. (5) A limited partnership that meets all of the following criteria is hereby prescribed as a limited partnership unit for the purposes of section 12(1)(d)(iv) of the Act: (a) the limited partnership unit is issued by a limited partnership that (i) is formed under section 52 of the Partnership Act , (ii) repealed AR 70/2017 s2, (iii) is managed by a general partner who, if an individual, resides in Alberta or, if a corporation, has a permanent establishment, as defined in the Alberta Corporate Tax Act , in Alberta, (iv) within the same period as that prescribed under section 10(2)(a) of the Act will make eligible investments in small businesses in amounts that, in total, are at least twice the amounts, in total, that the limited partnership has received from a venture capital corporation as investments made by it under section 12 of the Act, and (v) will keep the eligible investments described in subclause (iv) for at least the same period as that prescribed under section 10(2)(b) of the Act; (b) the venture capital corporation investing in a limited partnership by acquiring the limited partnership unit as a limited partner has satisfied the Minister through agreements to which the venture capital corporation is a party, or by other documentary evidence, that (i) the venture capital corporation, or (ii) any of its shareholders or their associates will not claim, take advantage of or otherwise avail itself, himself or herself of any benefits, rights or entitlements, including, but not limited to, any benefits, rights or entitlements that are or may be available under the federal Act, for the purpose of reducing the impact of any loss the venture capital corporation or a shareholder may sustain in holding or disposing of the limited partnership unit. (6) For the purposes of section 16 of the Act, amounts received indirectly by a small business from venture capital corporations include amounts received by an affiliate of the small business from venture capital corporations. (7) For the purposes of section 4(b) of the Act, “previously carried on business”, in respect of a corporation, means the corporation, at the time of registration under section 3 of the Act, (a) has received consideration in money from investors for shares in the corporation other than for the purpose of meeting the requirements for registration, (b) has made investments, or has options or agreements to make investments, in one or more businesses, or (c) is otherwise carrying on business. AR 203/2016 s1;70/2017 Equity share — prescribed rights 2 (1) Subject to the Act, prescribed rights and restrictions, for the purposes of the definition of “equity share” in section 2(1)(k) of the Act, are rights and restrictions attached to the share or rights and restrictions contained in or forming part of an agreement, commitment or understanding in respect of the share that (a) create a debt between the holder or beneficial owner of the share and any other person, (b) impair or will impair the ability of a venture capital corporation to maintain the levels of equity capital invested in eligible investments required by section 10 of the Act, (c) impair or will impair the ability of a corporation, in which a venture capital corporation has made an eligible investment, to carry on an ongoing business with a reasonable expectation of profit, or (d) will entitle the holder or beneficial owner of the share to reduce the impact of any loss the holder or beneficial owner will sustain in holding or disposing of the share. (2) Notwithstanding subsection (1), prescribed rights and restrictions do not include rights and restrictions that become operative upon the death, permanent disability, bankruptcy or other similar hardship of a shareholder of the venture capital corporation or the small business in which the venture capital corporation makes an eligible investment if that shareholder is a party to a contract with the venture capital corporation or the small business. (3) For the purpose of subsection (2), “similar hardship” means a hardship that, in the opinion of the Minister, warrants overriding the considerations referred to in subsection (1). Eligible business corporation — permitted share transfers 3 The following circumstances are prescribed for the purposes of section 42(6)(b) of the Act: (a) the share transfer is a direct share transfer by the purchaser to the purchaser’s retirement savings plan, tax‑free savings account or registered retirement income fund; (b) the share transfer is a direct share transfer by the purchaser to a spousal retirement savings plan or spousal registered retirement income fund; (c) the share transfer is a share transfer to an executor or estate due to the death of a purchaser; (d) the share transfer occurs as the result of a company share exchange right, share reorganization, acquisition or amalgamation and (i) the eligible business corporation remains registered under section 34 of the Act, and (ii) the registered owner of the share is the same after the share transfer takes place; (e) the share transfer occurs as the result of the exercise of a warrant, option or right entitling the holder to purchase or acquire an equity share of an eligible business corporation as defined in section 2(1)(k) of the Act, and the registered owner of the equity share so purchased or acquired is the same as the registered holder of the warrant, option or right. Minimum capital requirements 4 (1) For the purposes of section 10(2)(a) of the Act, a venture capital corporation must have invested in eligible investments (a) an amount at least equal to 40% of the equity capital it has raised during any fiscal year, by the end of its first following fiscal year, and (b) an amount at least equal to 80% of the equity capital it has raised during any fiscal year, by the end of its second following fiscal year. (2) For the purposes of section 10(2)(b) of the Act, a venture capital corporation must keep the amounts referred to in subsection (1) invested in eligible investments for at least 5 years after the date of the applicable investment. (3) An amount referred to in subsection (1)(a) or (b) is reduced by the amount of any dividend paid from the venture capital corporation to its shareholders if the dividend is not one that is paid from the venture capital corporation’s (a) net income, or (b) retained earnings calculated in accordance with generally accepted accounting principles. Additional conditions for registration 5 (1) The articles of a venture capital corporation applying for registration under the Act must provide that fees or remuneration of any kind to any shareholder, director or officer of the venture capital corporation, or to any affiliate or associate of those persons, are prohibited except as permitted by an annual ordinary resolution. (2) It is a requirement under section 4(f) of the Act that the articles of the venture capital corporation state that a majority of the directors of the venture capital corporation must be ordinarily resident in Alberta. (3) It is a requirement under section 4(f) of the Act that the articles of the venture capital corporation state that on registration of the venture capital corporation under the Investing in a Diversified Alberta Economy Act the corporation is subject to the Investing in a Diversified Alberta Economy Act . (4) Repealed AR 70/2017 s3. AR 203/2016 s5;70/2017 Register to contain additional information 6 In addition to the information referred to in section 6(3) of the Act, the register of venture capital corporations must also include the following information: (a) the principal place of business of the venture capital corporation; (b) the total amount of equity capital approved under section 11 of the Act; (c) the amount of equity capital, to the knowledge of the Minister, that the venture capital corporation has raised; (d) the amount that the venture capital corporation has, to the knowledge of the Minister, invested in eligible investments. Calculation period 7 (1) For the purposes of sections 9, 11 and 12, “calculation period” means (a) where a small business or affiliate of a small business has been in business for a period of less than one year as at the date of the calculation, that entire period, or (b) where a small business or affiliate of a small business has been in business for one year or longer, the 52 weeks just ended at the date of the calculation. (2) For the purpose of applying the formulas in sections 9, 11 and 12 to determine whether a proposed investment by a venture capital corporation in a small business is an eligible investment, the calculation period ends immediately before the venture capital corporation proposes to make the investment. Deemed amount of investment 8 (1) For the purposes of section 10(2) of the Act, the amount of equity capital invested by a venture capital corporation in an eligible investment is deemed to be zero as at the date the investment was made if an agreement, commitment or understanding in respect of that investment may result in the acquisition of that investment from the venture capital corporation within 5 years or such shorter time as the Minister specifies. (2) Subsection (1) does not apply with respect to an agreement, commitment or understanding authorizing the acquisition of the investment on the death, permanent disability, bankruptcy or similar hardship of a shareholder of the venture capital corporation or the small business in which the venture capital corporation makes an eligible investment if that shareholder is a party to a contract with the venture capital corporation or the small business. (3) For the purposes of subsection (2), “similar hardship” means a hardship that, in the opinion of the Minister, warrants overriding subsection (1). Small business — number of employees 9 (1) The number of employees of a corporation must be calculated, at the option of the venture capital corporation or the eligible business corporation, in accordance with either of the following formulas: (a) Number of Employees = Total Hours 40 x w where Total Hours = the total hours worked by all employees each of whom worked for at least 20 hours (counting all time worked by each employee whether for the small business, any of its affiliates or both) during any week of the calculation period; w = the number of weeks in the calculation period; (b) Number of Employees = Employee Costs x 52 ÷ 57 000 w where Employee Costs = all amounts paid or payable by the small business to or on behalf of employees for work performed or services provided by them during the calculation period; w = the number of weeks in the calculation period. (2) For the purpose of sections 12(1)(a) and 35(1)(a) of the Act, the number of employees of a small business together with its affiliates, is the sum of the number of employees calculated pursuant to subsection (1) of this section for the small business and each of its affiliates. Prescribed percentage of wages 10 For the purposes of sections 12(1)(b) and 35(1)(b) of the Act, the percentage of wages in Alberta is (a) in the case of a small business engaged in the export of goods from Alberta or in the provision of services outside Alberta, at least 50%, and (b) in the case of all other small businesses, at least 75%. Determination of wages and salaries 11 The percentage of wages and salaries that are paid to employees of a corporation or corporations for the purposes of sections 12(1)(b) and 35(1)(b) of the Act must be determined in accordance with the following formula: Percentage of wages and salaries = Wages (AB) x 100 Total Wages where Wages (AB) = the total remuneration that was paid to employees, of the corporation or corporations, who regularly reported to work at operations located in Alberta during the calculation period; Total Wages = the total remuneration that was paid to all employees, of the corporation or corporations, during the calculation period. Business activities 12 (1) The following are business activities for the purposes of sections 11(1)(c), 12(1)(c) and 37(3) of the Act: (a) the development and operation of a destination tourist resort, a tourist attraction or a tourist service, if (i) 50% or more of the gross revenue of the resort, attraction or service is derived from tourists, and (ii) the resort, attraction or service is located outside a national park of Canada; (b) the research, development and commercialization of proprietary technologies produced within Alberta including services that are directly associated with the export of the technology and are provided inside or outside of Alberta; (c) the development within Alberta for commercial use of interactive digital media or video game product that (i) responds to user interactions with moving images, animation, video or audio, and (ii) is not, based on inquiries the Minister considers adequate and appropriate, a product for which public financial support would be contrary to public policy; (d) the development and delivery within Alberta of post‑production services including (i) the development of visual effects and digital animation for commercial use, and (ii) the editing of video and audio, subtitling, closed caption and the creation and editing of visual and sound effects, other than post‑production services that, in the Minister’s opinion, are directly associated with a product for which public financial support would be contrary to public policy. (2) Despite subsection (1), a business activity prescribed under subsection (1) does not include (a) exploration or extraction of minerals or the operation of a mine unless those activities are carried on by a small business that is substantially engaged in the activities referred to in subsection (1)(b), (b) financial services such as providing loans, selling insurance or real estate or trading in securities, (c) property management or the rental or leasing of land or improvements, (d) the development of or improvement to land, (e) agricultural activities other than non‑traditional agricultural activities such as (i) specialized small crops, livestock and poultry production, or (ii) high technology enterprises, (f) retail and commercial services other than services referred to in subsection (1)(a) that are provided by a small business that derives more than 50% of its gross revenue from the provision of services to tourists, (g) restaurant or food services, or (h) the lease of tangible or intangible personal property to a person for the person’s personal consumption or use. (3) The Minister may exercise his or her discretion to the extent required in reaching a conclusion that a business activity is one prescribed under subsection (1) or (2). (4) For the purposes of sections 12(1)(c), 35(1)(c) and 37(3) of the Act, a small business is substantially engaged in a business activity prescribed under subsection (1) (a) if the result obtained from the following formula is greater than 0.5: Activity Assets + Activity Expenses Total Assets + Total Expenses where, for the purposes of this clause, Activity Assets = the value of assets of the small business used in Alberta in the business activity; Total Assets = the total value of all assets of the small business; Activity Expenses = all expenses incurred during the calculation period with respect to the portion of the business activity carried on in Alberta; Total Expenses = the total of all expenses incurred during the calculation period with respect to all operations of the small business, (b) if the small business’s permanent establishment, as defined in the Alberta Corporate Tax Act , is in Alberta, and (c) if not more than 20% of the small business’s assets are located outside of Alberta. (5) For the purpose of the calculation in subsection (4)(a), the value of assets and expenses must be determined in accordance with generally accepted accounting principles. AR 203/2016 s12;186/2019 Prescribed aggregate amount 13 (1) For the purposes of section 16(1)(a) of the Act, the prescribed amount is $10 million. (2) For the purposes of section 16(1)(b) of the Act, (a) the prescribed amount is $10 million, and (b) the prescribed period is the previous 2 years. Annual expense limits 14 (1) A venture capital corporation may incur annual expenses of no more than 20% of its equity capital raised under section 11 of the Act, other than expenses paid out of retained earnings, if (a) the expenses are reasonable and are incurred for (i) share issuance, (ii) office occupancy, (iii) legal fees, (iv) preparation of financial accounts by an external accountant, (v) preparation of the annual return under section 23, or (vi) a management fee of no more than 3% per annum of the equity capital raised, and (b) any expenses paid to a person who controls directly or indirectly, or who belongs to a group that controls directly or indirectly, the venture capital corporation have been specifically approved by ordinary resolution in advance of payment and are made to a person whose business it is to provide the services or things in respect of which the expenses were incurred. (2) For the purposes of subsection (1), retained earnings and expenses must be determined in accordance with generally accepted accounting principles. Calculation re section 20(9) of the Act 15 An amount authorized under section 20(9) of the Act to be paid out of the investment protection account must be the lesser of (a) 30% of the amount for which the share acquired was originally issued, and (b) the amount deposited in the investment protection account in respect of the share acquired. Application deadline 15.1 (1) For the purposes of section 21(2) and (3) of the Act, a venture capital corporation must apply for a tax credit certificate within the following period: (a) for a tax credit certificate related to the 2017 or 2018 calendar year, no later than December 31, 2019; (b) for a tax credit certificate related to the 2019 or a subsequent calendar year, no later than 90 days following the end of that calendar year. (2) For the purposes of section 38(1) and (2) of the Act, an eligible business corporation must apply for a tax credit certificate within the following period: (a) for a tax credit certificate related to the 2017 or 2018 calendar year, no later than December 31, 2019; (b) for a tax credit certificate related to the 2019 or a subsequent calendar year, no later than 90 days following the end of that calendar year. AR 231/2018 s2 Diversity and inclusion program 15.2 (1) In this section, “under-represented individual” means an individual who identifies as a member of a disadvantaged group, including (a) a female, (b) a person who identifies as a member of a sexual or gender minority, (c) a person of Canadian Indigenous ancestry, (d) a person with a long‑term or recurring physical or mental disability, and (e) a person of a visible minority. (2) For the purposes of section 38(1)(b) of the Act, a diversity and inclusion program must meet the following requirements: (a) subject to subsection (3), the eligible business corporation must have 3 or more directors; (b) subject to subsection (3), a majority of the directors must be under-represented individuals; (c) the eligible business corporation must have a diversity and inclusion policy that is approved by its directors; (d) the diversity and inclusion policy must be publicly accessible on a website. (3) Where an eligible business corporation’s chief executive officer is not a director, that individual shall nevertheless be included as a director for the purposes of subsection (2). (4) Where an eligible business corporation applies for a tax credit certificate in the amount referred to in section 38(1)(b) or (2)(b), or both, of the Act, the eligible business corporation must provide the following documents to the Minister at the time of the application: (a) a list of the names of its directors and chief executive officer; (b) a declaration signed by a director declaring that the eligible business corporation meets the requirements of the diversity and inclusion program. (5) For the purposes of section 39(7) of the Act, (a) a prescribed event is any event for which an eligible business corporation no longer meets the requirements of the diversity and inclusion program; (b) an eligible business corporation must notify the Minister of a prescribed event in writing. AR 231/2018 s2 16 Repealed AR 70/2017 s4. Notice to Minister 17 A venture capital corporation or eligible business corporation must within 30 days notify the Minister (a) of ceasing to maintain a place of business, or a permanent establishment, as defined in the Alberta Corporate Tax Act , in Alberta, (b) of changing its registered office under the Business Corporations Act , (c) of acquiring a different or additional place of business or permanent establishment, as defined in the Alberta Corporate Tax Act , in Alberta or elsewhere, (d) of changing its fiscal year end, (e) of directly or indirectly acquiring, redeeming or cancelling one of its own shares, (f) in the case of a venture capital corporation (i) of failing to comply with section 10(2), 13(1), 14(1), 15, 16, 17(1), 18, 19(1) or (2) or 20 of the Act, (ii) if an investment ceases to meet the criteria set out in section 12(1)(b) or (c) of the Act, (iii) of passing a resolution referred to in section 23(1)(a) to (c) or 24(1)(a) of the Act, or (iv) of taking or having taken against it action referred to in section 25(b) to (d) of the Act, or (g) in the case of an eligible business corporation (i) of failing to comply with section 37, 40, 41, 42(3) or (4) or 48 of the Act, or (ii) of ceasing to meet the criteria set out in section 35(1) of the Act. Prescribed amount 18 For the purposes of section 40(1) of the Act, the prescribed amount is $5 million. Fair market value 19 The onus of demonstrating that goods and services are sold for fair market value to a small business in accordance with sections 13(1)(e) and 48(e) of the Act is on the venture capital corporation and the small business. Other prohibited investments 20 Sections 13(1)(g)(iv) and 48(g)(iv) of the Act do not apply where all or part of the proceeds of the investment referred to in that section are directly or indirectly used, or intended to be used, by the small business to purchase any assets of a proprietorship, partnership, joint venture, trust or corporation (a) for utilization in a business or activity that is neither the same as nor similar to any business or activity that the seller of the assets to the small business carried on before, or at the time of, the sale of the assets to the small business, (b) that is the subject of a proposal to, or arrangement with, its creditors that has been approved by the court under the Bankruptcy and Insolvency Act (Canada), or (c) if all or substantially all of the purchased assets are under the control of a receiver, receiver manager, sequestrator or trustee in bankruptcy. Other permitted investments 21 For purposes of section 19(1)(e) of the Act, securities that are issued by the Government of Alberta or Canada are permitted investments. Permitted investment in a security 22 A venture capital corporation must not make an investment in a security under section 19(1)(c) of the Act unless the security is issued directly to the venture capital corporation by the small business. Reporting requirements 23 For the purposes of section 28 of the Act, a venture capital corporation must, with respect to its most recently ended fiscal year, include the following information in its annual return: (a) the amount of equity capital raised by the venture capital corporation; (b) the aggregate value at cost of investments made by the venture capital corporation, the name of each small business the shares of which the venture capital corporation sold and the value at cost of those shares; (c) the balance held in the investment protection account of the venture capital corporation at the end of the fiscal year; (d) the aggregate amount of expenses incurred by the venture capital corporation and the amount paid as management fees; (e) whether any fees or remuneration were paid to the shareholders, officers or directors of the venture capital corporation or to any associate or affiliate of any of them by a small business in which the venture capital corporation made an eligible investment; (f) whether the articles of the venture capital corporation were amended in a manner that changed the share structure of the venture capital corporation or altered any rights or restrictions attached to any share of the venture capital corporation; (g) the amount of all dividends received by the venture capital corporation in respect of an eligible investment made by it in a small business; (h) whether the venture capital corporation redeemed any of its shares; (i) whether a share redemption referred to in clause (h) was reported to the Minister; (j) in relation to a share redemption referred to in clause (h) that was not reported to the Minister, the name of each investor whose shares were redeemed, the date of each redemption, the number of shares redeemed in each redemption, the investor’s cost of each share redeemed in each redemption and the consideration paid by the venture capital corporation in respect of the redemption; (k) whether the venture capital corporation paid any expenses to any person or group of persons who, at the time the payment was made, directly or indirectly controlled the venture capital corporation; (l) whether the venture capital corporation notified the Minister of the occurrence of any events referred to in section 17. Cancellation of tax credit certificate 24 (1) The Minister must cancel a tax credit certificate and issue a new tax credit certificate where information on the original certificate is incorrect or has changed since the date the original tax credit certificate was issued or for any other similar reason the Minister considers appropriate. (2) A tax credit certificate cancelled under subsection (1) is deemed never to have been issued. (3) A tax credit certificate issued under subsection (1) is deemed to have been issued on the same date that the certificate cancelled under subsection (1) was issued under section 21 or 39 of the Act. Coming into force 25 This Regulation comes into force on January 1, 2017.