NLR 153/04 - Labour-Sponsored Venture Capital Tax Credit Regulations under the Labour-Sponsored Venture Capital Tax Credit Act

NEWFOUNDLAND AND LABRADOR REGULATION 153/04 Labour-Sponsored Venture Capital Tax Credit Regulations under the Labour-Sponsored Venture Capital Tax Credit Act (O.C. 2004-524) Amended by: 5/05 2011 c3 s2 80/12 NEWFOUNDLAND AND LABRADOR REGULATION 153/04 Labour-Sponsored Venture Capital Tax Credit Regulations under the Labour-Sponsored Venture Capital Tax Credit Act (O.C. 2004-524) (Filed December 22, 2004 ) Under the authority of section 18 of the Labour-Sponsored Venture Capital Tax Credit Act , the Lieutenant-Governor in Council makes the following regulations. Dated at St. Johns , December 22, 2004 . Tim Murphy Deputy Clerk of the Executive Council REGULATIONS Analysis 1. Short title 2. Interpretation 3. Repayment 4. Criteria for registration 5. Requirement on corporation 6. Filing of returns 7. Interest 8. Commencement Short title 1. These regulations may be cited as the Labour-Sponsored Venture Capital Tax Credit Regulations . 153/04 s1 Back to Top Interpretation 2. (1) In the Act and these regulations, (a) "Act" means the Labour-Sponsored Venture Capital Tax Credit Act ; (b) "eligible business entity" means a Canadian controlled private corporation carrying on qualifying activities, of which all or substantially all of the fair market value of the property is attributable to property used in an active business or the shares of capital stock of one or more corporations that are eligible business entities where (i) the total value of the total assets, as defined in the Income Tax Act, 2000 , of the business and all associated corporations does not exceed $50,000,000, (ii) the number of employees of the business and all associated corporations does not exceed 500, (iii) at least 75% of salaries and wages are paid in the province by the eligible business to residents in the province who regularly work at a permanent establishment of the business in the province, and (iv) the business is an active business and is not primarily engaged in (A) wholesale or retail trade, (B) food establishments or establishments that hold a licence issued under the Liquor Control Act , (C) personal services, business services, professional practises and trades, unless all or substantially all of those services relate to tourism activities or export or import related activities that the minister may determine, (D) real estate marketing or development, (E) oil and gas development or production, (F) mineral resource exploration, (G) financial services, (H) fish harvesting and primary fish processing except the processing of underutilized species that the minister may designate, and (I) an activity that, in the opinion of the minister, is not in keeping with the purpose of the program governed by this legislation; (c) "eligible investment" of a labour-sponsored venture capital corporation means (i) a share that was issued to the corporation by an entity that was an eligible business entity at the time the share was issued, (ii) a debt obligation that was issued to the corporation by an entity that was an eligible business entity at the time it was issued where (A) the entity is not restricted by the terms of the debt obligation, or by the terms of any agreement related to the obligation, from incurring other debts, (B) the debt obligation, if secured, is secured solely by a floating charge on the assets of the entity or by a guarantee referred to in subparagraph (iii), and (C) the debt obligation, by its terms or the terms of any agreement related to it, is subordinate to all other debt obligations of the entity except that, where the entity is a corporation, the debt obligation need not be subordinate to (I) a debt obligation issued by the entity that is prescribed as a small business security for the purposes of definition "small business property" in subsection 206(1) of the Income Tax Act (Canada), or (II) a debt obligation owing to a shareholder of the entity or to a person related to that shareholder, (iii) a guarantee provided by the corporation in respect of a debt obligation that, if the debt obligation had been issued to the corporation at the time the guarantee was provided, would have been an eligible investment because of subparagraph (ii), and (iv) an option or right granted by an eligible business entity, in conjunction with the issue by the entity of a share or debt obligation that is an eligible investment of the corporation, to acquire a share of the capital stock of the entity that would be an eligible investment of the corporation if that share were issued at the time that the option or right was granted; (c.1) "non-convertible", with respect to eligible shares, means shares that are not convertible or exchangeable other than as prescribed under subparagraph 3(1)(a)(iv) of the regulations; (c.2) "non-redeemable" with respect to eligible shares means shares th a t are (i) not redeemable until the time set out in subsection 9(2) of the Act has expired, except as permitted under the Act and regulations made under the Act, or (ii) redeemable at any time provided that amounts payable under subsection 9(2) of the Act shall be deducted from the redemption proceeds and remitted by the labour-sponsored venture capital corporation or the fund manager to the minister on behalf of the redeeming shareholder; (d) "personal services" and “business services” do not include research and development, information and other innovative technologies or similar services as determined by the minister; (e) "salaries and wages" means income from an office or employment as determined under section 5 of the Income Tax Act ( Canada ); and (f) "wholesale or retail trade" does not include business activities which, in the opinion of the minister, apply significant new technologies, formats or methods, as compared to most wholesale or retail businesses. (2) Where a word is not defined in the Act or the regulations, where the context allows, it shall have the same meani n g as the Income Tax Act, 2000 or the Income Tax Act ( Canada ) . 153/04 s2 ; 5/05 s1 Back to Top Repayment 3. (1) For the purpose of paragraph 9(2)(b) of the Act, (a) no repayment of the amount referred to in paragraph 9(2)(a) of the Act is required where the disposition is (i) a result of the death of the person who held the share, (ii) to a registered retirement savings plan, a registered retirement income fund or a tax-free savings account under the Income Tax Act (Canada) , (ii.1) by a registered retirement savings plan, a registered retirement income fund, or a tax-free savings account under the Income Tax Act (Canada) to the annuitant under the plan or fund, or the beneficiary of the account, (iii) a result of the labour-sponsored venture capital corporation that issued the share ceasing to conduct business because of, in the opinion of the minister, the financial failure of the labour-sponsored venture capital corporation, or (iv) a result of an exchange of a share of one series in a class of shares for a share of a different series in the same class of shares, if each series of shares within the class meets the eligibility requirements of the Act; (b) no repayment of the amount referred to in paragraph 9(2)(a) of the Act is required if the tax credit is not claimed against taxes payable and the tax credit receipt is returned to the labour-sponsored venture capital corporation within 60 days of issue; (c) where the disposition is a result of the wind-up or dissolution of the labour-sponsored venture capital corporation that issued the share for reasons other than as provided in paragraph (a)(iii), payment to the minister shall be in the amount that is determined by multiplying the total amount of the tax credits received in respect of the shares by 96 minus the number of months the shares have been held, divided by 96 months; and (d) a share acquired in accordance with paragraph (a)(iv) is considered to have been acquired on the date on which the original share that was held before the exchange was acquired. (2) Upon application, the minister may waive or prorate repayment of an amount referred to in subsection 9(2) of the Act. 153/04 s3 ; 2011 c3 s2 Back to Top Criteria for registration 4. For the purpose of section 4 of the Act, the criteria that shall be met for a corporation to be a registered labour-sponsored venture capital corporation are that the corporation (a) maintain a permanent establishment in the province; (b) establish a separate investment committee in the province, with a majority of its members being residents of the province provided that the investment committee is delegated the full authority and control to approve and reject investments in the province; (c) has or will have, immediately after registration and afterwards, capital of at least $250,000; (d) has authorized capital that includes Class A shares having rights, privileges, restrictions and conditions attached to them that provide that the Class A shares are either (i) not redeemable until the time set out under subsection 9(2) of the Act has expired, except that the holder of the shares or that holders personal representative may require the corporation to redeem those shares on the holders death or under circumstances that are prescribed under these regulations, or (ii) redeemable at any time provided that amounts payable under subsection 9(2) of the Act shall be deducted from the redemption proceeds and remitted by the labour-sponsored venture capital corporation or the fund manager to the minister on behalf of the redeeming shareholder; (e) has a constitution that provides for (i) assisting businesses in creating and maintaining employment by making specified investments in eligible business entities, (ii) exercising ownership rights with respect to investments made by the corporation in eligible business entities, and (iii) providing the administrative support necessary to carry on the business of the corporation, including preparation of annual reports and the holding of meetings of shareholders and the board of directors; (f) issues shares in compliance with the Securities Act ; (g) or its manager employ, or will employ within 6 months of registration, one full time equivalent investment manager who is resident in the province and, unless otherwise agreed by the minister, the corporation or its manager commits to additional investment managers in proportion to the amount of capital raised and under management in the province; and (h) is in compliance with the Securities Act . 5/05 s2 Back to Top Requirement on corporation 5. (1) With respect to equity capital raised in the province, the labour-sponsored venture capital corporation is required, on or after January 1, 2005 (a) to make an eligible investment of at least 40% of the equity capital into eligible business entities in the province at any time in the first 12 months immediately following the end of the labour-sponsored venture capital corporations taxation year in which the equity capital was raised; (b) to make an eligible investment of at least 60% of the equity capital into eligible business entities in the province within one year immediately following the time referred to in paragraph (a); and (c) to make an eligible investment of at least 75% of the equity capital into eligible business entities in the province within one year immediately following the time referred to in paragraph (b) and all subsequent years. (2) For the purpose of section 7 of the Act, where a labour-sponsored venture capital corporation has invested equity capital in an eligible business entity, the trustee may pay over to the labour-sponsored venture capital corporation fund, from the trust fund, an amount equal to (a) 15/75 of the equity capital so invested; plus (b) 15/75 of interest accumulated in the trust fund. 153/04 s5 Back to Top Filing of returns 6. The labour-sponsored venture capital corporation shall file an annual return on a form provided by the minister containing the following information: (a) a copy of all forms and schedules required to be filed for the purposes of the Income Tax Act, 2000 , including financial statements required by that Act; (b) a list of all individuals who have made an investment in a labour-sponsored venture capital corporation in the taxation year and the list shall include the individuals name, social insurance number, address, amount of investment made and the date of the investment; (c) a detailed report on all potential investments reviewed by the investment committee during the year by a labour-sponsored venture capital corporation signed by 2 senior officers of the labour-sponsored venture capital corporation; and (d) other information the minister may require. 153/04 s6 Back to Top Interest 7. (1) Interest shall be levied upon a sum due under subsection 6(3) and paragraph 9(2)(a) of the Act for each month or part of a month from the date the sum is required to be paid to the date of payment. (2) For the purpose of subsection (1), the annual rate of interest with respect to unpaid tax is the rate equal to the sum of (a) the prime lending rate of the bank holding the provinces general revenue fund as determined and adjusted in accordance with this section; and (b) 4 percentage points. (3) Interest calculated under subsection (2) shall be compounded monthly. (4) The interest rate prescribed by this section shall be determined on June 15 and December 15 in each year and (a) the interest rate as determined on June 15 shall apply to unpaid tax that is owing after June 30; and (b) the interest rate as determined on December 15 shall apply to unpaid tax that is owing after December 31. (5) Interest shall not be levied for a month in which the sum due is less than $100. 80/12 Back to Top Commencement 8. These regulations shall come into force on January 1, 2005 . 153/04 s8 ©Earl G. Tucker, Queen's Printer