Equity Tax Credit Regulations
made under Section 27 of the
Equity Tax Credit Act
S.N.S. 1993, c. 3
O.I.C. 94-86 (February 2, 1994), N.S. Reg. 18/94
as amended to O.I.C. 2005-54 (effective February 11, 2005), N.S. Reg. 17/2005
1 These regulations may be cited as the Equity Tax Credit Regulations.
2 In the Act and these regulations,
(a) “Act” means the Equity Tax Credit Act;
(b) “approved entity” means any labour-sponsored venture-capital corporation in
good standing and registered under the Act after December 31, 2004, or any
community economic-development corporation in good standing and registered
under to the Act or any other corporation approved by the Minister that in each
case meets the following criteria:
(i) all investments made in the entity are at arm’s length,
(ii) no investment in the entity exceeds 40% of the capital of the approved
entity,
(iii) no investment in the entity is redeemable for at least 4 years,
(iv) all investments in the entity are held for a minimum of 2 years,
(v) the entity has capitalization of at least $1 000 000,
(vi) the entity has filed at least one tax return with the Canada Revenue
Agency, and
(vii) the entity complies with the Act and these regulations;
(c) “Atlantic Provinces” means the provinces of Nova Scotia, New Brunswick,
Prince Edward Island and Newfoundland and Labrador;
(d) “consumer co-operative” means an association, as determined by the Director
of Co-Operatives, that undertakes or carries on an active business where the
majority of its revenue is received from its members and such membership is
not restricted to an individual that would be a member of a marketing,
producer or employee co-operative;
(e) “defined community” means a group of persons situated within the Province
that may be reasonably distinguished by common geographic, economic or
cultural characteristics;
(f) “eligible business entity” means a taxable Canadian corporation, 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 of the business entity and all associated
corporations does not exceed $25 000 000.00, when calculated in
accordance with Section 7,
(ii) the number of employees of the business entity does not exceed 500, and
(iii) at least 75% of salaries and wages paid by the business entity are paid in
the Province;
(g) “employee co-operative” means an association, as determined by the Director
of Co-Operatives,
(i) that undertakes or carries on business with the marketing, buying,
selling, preserving, harvesting, drying, processing, manufacturing,
canning, packing, grading, storing, handling or utilizing of any product,
or the manufacturing or marketing of the by-products thereof, whose
stated objective in its Articles of Association is to provide employment
for its members and where such membership is restricted to employees
of the association, or
(ii) that takes or otherwise acquires and holds shares, stock, debentures or
takes securities of or acquires and holds membership in a single
association that would be a consumer, marketing or producer co-operative that
(A) sells voting shares only to permanent employees of that
association, and
(B) has at least one seat on the Board of Directors of that association;
(h) “individual” does not include a trust except a trust governed by a registered
retirement savings plan where
(i) the individual makes contributions to the trust and those contributions,
and no other funds, can reasonably be considered to have been used by
the trust to acquire or subscribe for the share, and
(ii) the annuitant under the plan is the individual or a spouse of the
individual;
(i)“marketing co-operative” means an association, as determined by the Director
of Co-Operatives, that undertakes or carries on business with the marketing,
buying or selling of any product with a majority of its purchases of goods and
services made from members;
(j) “producer co-operative” means an association, as determined by the Director of
Co-Operatives, that undertakes or carries on business with the preserving,
harvesting, drying, processing, manufacturing, canning, packing, grading,
storing, handling or utilizing of any product, or the manufacturing or marketing
of the by-products thereof, with a majority of its purchases of goods and
services made from members;
(k) “salaries and wages paid in the Province” means remuneration paid to full time
employees of an eligible business who reside in the Province and who
regularly work at a permanent establishment of the eligible business located in
the Province;
(l) “specified investment” means
(i) a share that was issued to a labour-sponsored venture-capital corporation
or a community economic-development corporation that is a share of the
capital stock of an eligible business entity at the time the share was
issued,
(ii) a particular debt obligation that was issued to the labour-sponsored
venture-capital corporation or a community economic-development
corporation by an entity that was an eligible business entity at the time
the particular debt obligation was issued where
(A) the entity is not restricted by the terms of the particular debt
obligation or by the terms of any agreement related to that
obligation from incurring other debts,
(B) the particular debt obligation, if secured, is secured solely by a
floating charge on the assets of the entity or by a guarantee referred
to in subclause (iii), and
(C) the particular debt obligation, by its terms or any agreement
relating to that obligation, is subordinate to all other debt
obligations of the entity, except that, where the entity is a
corporation, the particular debt obligation need not be subordinate
to
(I) debt obligation issued by the entity that is prescribed to be a
small business security for the purposes of paragraph (a) of
the 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 any such shareholder,
(iii) a guarantee provided by the labour-sponsored venture-capital
corporation or a community economic-development corporation in
respect of a debt obligation that would, if the debt obligation had been
issued to the particular corporation at the time the guarantee was
provided, have been an eligible investment by reason of subclause (ii) at
that time, or
(iv) an option or a right granted by an eligible business entity, in conjunction
with the issue of a share or debt obligation that is an eligible investment,
to acquire a share of the capital stock of the eligible business entity that
would be an eligible investment if that share were acquired at the time
that the option or right was granted;
(m) “voting share” means, where that share refers to an association, a share that
would, if it were the only share owned by the member, entitle the member to a
vote in the affairs of the association.
3 For the purposes of clause (d) of Section 2 of the Act, the criteria for a community
economic-development corporation or association are that the corporation or association
(a) has a constitution that
(i) restricts the business of the corporation or association to
(A) operating or carrying on business that is an active business or to
evaluating and making eligible investments in one or more active
businesses based on a set of criteria defined by the corporation,
(B) providing information to and educating investors in the defined
community as to the role of capital in business, the value of equity
investments to the defined community and the rights and
obligations of corporations and shareholders,
(C) investing the capital raised, to which a tax credit pursuant to the
Act has been issued, in eligible businesses located within the
defined community,
(D) exercising ownership rights with respect to the eligible investments
made by the corporation,
(E) 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,
(ii) describes the defined community for which the corporation was formed,
(iii) makes provisions for annual general meetings of the shareholders;
(b) has a Board of Directors, elected by the shareholders at a general meeting of
the shareholders, consisting of not less than six individuals who are residents
of the community in which the corporation or association carries on business;
and
(c) is not a non-profit, charitable or non-taxable corporation or association.
4 For the purposes of clause (e) of said Section 2 of the Act, a community economic-development plan shall contain or make provisions for at least the following:
(a) a mission statement outlining the economic-development strategy of the
corporation and the defined community it intends to serve;
(b)the amount of equity capital to be raised under the plan;
(c)that the shares issued under the plan
(i)are equity shares,
(ii) are of only one class without series and have never previously been
issued,
(iii) will only be issued from the treasury of the corporation on being fully
paid for in cash,
(iv) will, immediately following their issue, be registered in the name of each
shareholder that purchases them or in the name of a trustee, if the shares
are held by the trustee for the benefit of a shareholder, and
(v) do not have any rights or restrictions that may be prohibited by these
regulations;
(d) that, if a share certificate is not required to be issued to each new shareholder,
an investment confirmation be issued to each new shareholder within thirty
days of share registration, setting out at least the following:
(i)the number of shares acquired,
(ii)the price paid per share,
(iii)the total amount paid,
[(iv) Original text does not contain a subclause 4(d)(iv).]
(v) the procedure for obtaining the tax credit receipt pursuant to the Act.
5 For the purposes of subclause (iv) of clause (k) of said Section 2, there shall be a
minimum of 3 eligible investors.
6 (1) For the purposes of clause (f) of subsection (1) of Section 3 and clause (d) of
subsection (1) of Section 11, an application shall contain a business plan containing
at least the following information:
(a) the amount of equity to be raised by the specified issue;
(b) the proposed use of funds raised by the specified issue;
(c) a summary of the major business activities of the corporation or association,
including major revenue sources;
(d) a listing of the Directors of the eligible business including names, addresses
and background information.
(2) [repealed]
7 (1) For the purposes of clause (d) of Section 4 of the Act, the total assets of an eligible
business at the end of a taxation year as shown in its financial statements, means the
aggregate of the following amounts shown in those financial statements:
(a) the amounts which are the net carrying costs of assets, other than assets the
cost of which is depreciated or amortized; and
(b) the amounts which are the undepreciated cost and unamortized cost of those
assets, the cost of which is depreciated or amortized.
(2) There shall be no duplication in calculating the amounts referred to in subsection (1).
(3) If any portion of the appraisal surplus in respect of any assets shown in the financial
statements has been depreciated or amortized by the corporation, the amount referred
to in subsection (1) shall be the amount of the appraisal surplus in respect of the
asset, less the amount of all depreciation or amortization taken in respect of such
appraisal surplus.
(4) For the purposes of clause (f) of said Section 4 of the Act, an association shall
undertake or carry on business as a marketing, producer or employee co-operative as
defined in these regulations.
8 For the purposes of subsection (1) of Section 8 of the Act, an eligible business shall make
an application for a tax credit certificate, on or before the tenth day of the month following
the month in which a share was issued, as part of a specified issue for which the tax credit
is being requested.
9 [repealed]
10 (1) For the purpose of clause 9(2)(b) and clause 18A(2)(b) of the Act,
(a) no repayment of the amount referred to in clause 9(2)(a) or clause 18A(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) with respect to a share that was purchased as part of a specified issue of
shares by a corporation only to its employees, a result of involuntary loss
of employment,
(iii) to a registered retirement savings plan or a registered retirement income
fund pursuant to the Income Tax Act (Canada),
(iv) a result of the corporation that issued the share ceasing to conduct
business because of, in the opinion of the Minister, the financial failure
of the corporation, or
(v) 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 clause 18A(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
corporation that issued the share for reasons other than as provided in
subclause (a)(iv), repayment 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 48 minus the number of months the shares have been
held, divided by 48 months.
(1A) A share acquired in accordance with subclause (1)(a)(v) is deemed 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) or subsection 18A(2) of the Act.
11 For the purposes of clause (f) of Section 12 of the Act, an association shall carry on
business as a marketing, producer or employee co-operative as defined in these
regulations.
12 (1) For the purposes of Section 15 of the Act, the criteria that shall be met for a
corporation to be a registered labour-sponsored venture-capital corporation are:
(a) the corporation is incorporated pursuant to the Companies Act or is registered
pursuant to subsection 204.81(1) of the Income Tax Act (Canada);
(b) the corporation has not previously carried on a business, other than business
related to obtaining registration pursuant to the Act;
(c) the corporation has or will have, immediately after registration and thereafter,
equity capital of at least twenty-five thousand dollars;
(d) the corporation has authorized capital consisting of shares of one class without
par value which have the following rights, privileges, restrictions or conditions:
(i) the corporation shall not redeem or purchase equity shares of that class,
except on death of the shareholder, until the time set out in subsection
18A(2) of the Act has expired,
(ii) the holder of equity shares, or the holder’s personal representative, has
the right to require the corporation to redeem such equity shares on the
holder’s death or under any circumstances that may be prescribed
pursuant to these regulations;
(e) the corporation has a constitution that restricts the business of the corporation
to
(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,
(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) the corporation is incorporated by a trade union, as defined in the Trade Union
Act, that has filed its constitution and by-laws with the Minister of Labour;
(g) the articles of incorporation provide that the majority of the directors appointed
to the Board of Directors are appointed by the trade union that sponsored the
corporation, that only that trade union may replace or remove any director
appointed by that trade union and that at least two seats on the Board be
reserved for members elected from the general shareholders;
(h) that the issue of shares complies with the Securities Act and regulations;
(i) at least 75% of all salaries and wages paid by the corporation and any affiliate
of the corporation are paid to residents of the Province or at least 90% of all
salaries and wages paid by the corporation and any affiliate of the corporation
are paid to residents of one of the Atlantic Provinces;
(j) the corporation together with any affiliate of the corporation employs 3 or more
employees who are residents of one of the Atlantic Provinces and whose
combined total paid hours of employment are not less than 3900 in a 12-month
period, or in the case of a short taxation year, an equivalent amount pro-rated;
and
(k) the majority of the directors and senior officers of the corporation and any
affiliate of the corporation are residents of one of the Atlantic Provinces.
(2) [repealed]
13 (1) For the purposes of subsection (1) of Section 17 of the Act, the Minister may revoke
a certificate of eligibility where the corporation
(a) has not, with respect to equity capital raised in the Province
(i) before March 1, 2001, invested at least 80% of the equity capital in
eligible business entities or reserves as defined in subsection 204.8(3) of
the Income Tax Act (Canada) or, in the case of a corporation registered
under the Act before December 31, 2004, approved entities, at any time
in the first 3 years immediately following the end of the corporation’s
taxation year in which the equity capital was raised,
(ii) on or after March 1, 2001, and before December 31, 2004, invested at
least 80% of the equity capital in eligible business entities or reserves as
defined in subsection 204.8(3) of the Income Tax Act (Canada) or, in the
case of a corporation registered under the Act before December 31, 2004,
approved entities, at any time in the first 12 months immediately
following the end of the corporation’s taxation year in which the equity
capital was raised,
(iii) on or after January 1, 2005, invested at least 70% of the equity capital in
eligible business entities or, in the case of a corporation registered under
the Act before December 31, 2004, approved entities, at any time in the
first 12 months immediately following the end of the corporation’s
taxation year in which the equity capital was raised; or
(aa) has not invested at least 60% of the equity capital raised in the Province
in the corporation’s taxation year in eligible business entities or, if
applicable, approved entities, within 1 year immediately following the
time referred to in subclause (a)(i) or (a)(ii); or
(ab) has not invested at least 80% of the equity raised in the Province in the
corporation’s taxation year in eligible business entities or, if applicable,
approved entities, within 1 year immediately following the time referred to in
subclause (a)(iii);
(b) has been suspended or otherwise restricted from issuing shares in the Province
by the Nova Scotia Securities Commission; or
(c) on or after January 1, 2005, does not meet the eligibility criteria as set out in
Section 12.
(1A) For the purposes of clauses (1)(a), (1)(aa) and (1)(ab), investments
(a) disposed of by the labour-sponsored venture-capital corporation are deemed to
be invested for only 9 months after disposal;
(b) do not include any portion of any publicly traded company whose cost exceeds
15% of the total equity capital raised in the Province by the corporation unless
the investment was held prior to the investment becoming a publicly traded
company.
(2) Where a certificate of registration has been revoked by the Minister, the Minister
may at such time as the Minister deems appropriate require the corporation to pay a
penalty equal to the aggregate of
(a) 20% of all amounts raised through the issue of shares for which a tax credit
certificate was issued,
less
(b) 20% of all amounts invested by the corporation in eligible business entities.
(3) Notwithstanding subsection (2), the Minister may waive a penalty if, in the opinion
of the Minister, the corporation is or will be eligible for a new certificate of
registration upon application.
(3A) A corporation must pay a penalty imposed under subsection (2) within 90 days.
(4) Where a corporation is required to pay a penalty pursuant to said subsection (2), the
Minister may assess interest from the date that such payment is required to be made
to the date the payment is made, at a rate equal to that set by regulation 4300 of the
Income Tax Act (Canada).
14 For the purposes of clause (e) of subsection (3) of Section 18 of the Act, the aggregate of
all labour-sponsored venture-capital tax credits issued pursuant to Part II of the Act for the
fiscal year of the province shall not exceed five million dollars.
15 For the purposes of Section 20 of the Act, the annual return shall be filed on a form
acceptable to the Minister and contain at least the following information:
(a) a copy of all forms and schedules required to be filed for the purposes of the
Income Tax Act, including financial statements required by that Act;
(b) a list of all individuals who have made an investment in the corporation,
association or labour-sponsored venture-capital corporation, as the case may
be, in the taxation year and such list shall include the individual’s name, social
insurance number, address, amount of investment made and the date of the
investment;
(c) details of investments, including financial statements of investees, made by a
community economic-development corporation sufficient to determine
compliance with clause 16(a);
(d) details of any purchase, redemption or acquisition of its shares by a
community economic-development corporation sufficient to determine
compliance with clause 16(b); and
(e) a detailed report on all potential investments reviewed during the year by a
labour-sponsored venture-capital corporation signed by 2 senior officers of the
labour-sponsored venture-capital corporation.
16 (1) For purposes of clause 6(1)(d) of the Act, the Minister may revoke a certificate of
registration of a community economic-development corporation where the
corporation
(a) has not invested
(i) at least 40% of the equity capital raised in the Province in an eligible
business entity within 12 months after the closing date of a specified
issue,
(ii) at least 60% of the equity capital raised in the Province in an eligible
business entity within 24 months after the closing date of a specified
issue, or
(iii) at least 80% of the equity capital raised in the Province in an eligible
business entity within 36 months after the closing date of a specified
issue;
(b) has purchased, redeemed or otherwise acquired shares issued by it if
(i) without the prior written approval of the Minister, the cost of the
purchase, redemption or acquisition exceeds 20% of the corporation’s
retained earnings, or
(ii) the purchase, redemption or acquisition results in the corporation being
unable to pay its liabilities as they become due;
(c) fails to comply with the requirements of the Securities Act and the Community
Economic-Development Corporations Regulations;
(d) fails to provide the applicable information or returns as provided in clauses
15(c) or (d).
(2) In lieu of revoking a certificate under subsection (1) the Minister may, if a
corporation does not meet the requirements of clause 1(a), do any or all of the
following:
(a) impose a 1% per month reduction of the guarantee provided pursuant to
Section 13A of the Act;
(b) assess a penalty equal to 1/6 of any shortfall unless imposition of the penalty
would result in the bankruptcy of the corporation.
(3) A corporation may apply to the Minister for a reinstatement of the full amount of the
guarantee reduced pursuant to clause 2(a), or a refund of the penalty amount imposed
pursuant to clause (2)(b), as the case may be, if the corporation subsequently meets
the requirements of clause 1(a).
17 (1) For purposes of subsection 13A(2) of the Act, and subject to subsections (2), (3) and
(4),
(a) where a community economic-development corporation is dissolved at any
time on or before the 4th an[n]iversary of the closing date of an issue, the
Province shall pay to each eligible investor in the corporation an amount equal
to the difference between the amount received by the eligible investor on the
wind-up of the corporation and 20% of the eligible investor’s investment in the
corporation;
(b) where, on the 4th anniversary of the closing date of an issue, the community
economic-development corporation determines the value of eligible
investments to be less than 20% of the initial eligible investments, the Province
shall pay to each eligible investor the difference between the amount of the
valuation and 20% of the eligible investor’s initial investment.
(2) An application for payment pursuant to subsection (1) shall be
(a) made by the community economic-development corporation on behalf of its
eligible investors;
(b) supported by an independent valuation carried out by a chartered business
valuator or such other satisfactory documentation as determined by the
Minister; and
(c) submitted to the Minister no later than 3 months after the 4th anniversary of the
closing date of the issue in respect of which the application is being made.
(3) For greater certainty,
(a) the guarantee provided for in Section 13A of the Act shall be for a period not
exceeding 4 years from the closing date of an issue;
(b) where the Province has made a payment pursuant to this Section, the Province
shall have no further obligation respecting a guarantee of the issue in respect of
which payment was made.
18 (1) For purposes of this Section, “restricted area” means the geographical areas of the
Province comprising the former cities of Halifax and Dartmouth, the former town of
Bedford, and the area commonly known as Sackville.
(2) No guarantee of an eligible investment shall be given where the proceeds of a
special issue arising from the eligible investment are invested by a community
economic-development corporation in a restricted area.
(3) Despite subsection (2), where a community economic-development corporation
invests a portion of the proceeds in a restricted area and a portion of the proceeds
outside a restricted area, a guarantee as described in Section 17 shall apply to that
portion invested outside of the restricted area.
19 For the purposes of Section 19 of the Act, the register must contain the name, address and
registration certificate number of each corporation registered pursuant to the Act.
The following regulations are not yet in force and are
not included in the current consolidation: