What The BC Tax Credit Means for Investors
- Details Posted Feb 15, 2012
By Taylor Kate Brown
British Columbia already offers a significant investment tax break for equity investors backing small businesses in the province, but it recently expanded the program to the tune of $3 million to further jump start angel investing there. For investors, eligible annual investments can mean up to a 30% tax credit.
The tax credits come mainly from the province's Equity Capital Budget, and like most budgets there's a limit to the funds. The total amount available for all venture tax credits in BC is $48.33 million, with three smaller budgets for investments made in specific sectors. The total available tax credit funds:
- ECB - $48.33 million
- Cleantech Venture Budget - $15 million
- New Media Budget - $16.66 million
- Community Budget - $10 million
As of February 2012, none of the budgets had not been exhausted. The Community budget is the most depleted, having dispersed 79% of its total to participants.
Who is eligible?
An investor must also make sure that the businesses meet BC's guidelines. All businesses, even in the specific sectors, must follow the ECB's criteria, including having less than 100 employees (this is a small business investment program) and paying at least 75% of wages and salaries to employees that report to work in British Columbia.
British Columbia's tax credit program is available through two registration options: venture capital corporations investing in British Columbia businesses and the businesses themselves.
An eligible business corporation is a more direct investment option. The small business that will receive funds registers with BC as eligible recipients of equity funding under the program. This approach is better for investors that will have a very active role in the company they invest in.
For the individual sector budgets, would-be investors must make sure the company can be said to be "substantially engaged" in the activity of the indicated sector. For example, a cleantech company must be involved in some element of producing technologies that reduce greenhouse gas emissions, or increase energy efficiency or conservation. That includes research and development, but it must be the primary work of the company.
Similar restrictions apply to the new media and community budgets.
Lowering the tax bill
What does this mean for a BC small business investor? Fund a company that fits the criteria and the British Columbia government will allow you to take up to $60,000 in tax credits each year as an individual. If 30% of your investment is more than the $60,000 limit, additional credit left over from that year's investment can be applied for up four additional tax years.
If a corporation based in Britich Columbia makes the investment, the credit is eligible for taxes otherwise payable in a single year.
Manitoba has its own tax credit program, with more stringent requirements related to the funded business.
By providing a strong incentive for venture capital, BC hopes to attract future-thinking companies and investors to the province. While the program has attracted some interest, there appears to be ample room, especially in the new media sector, for investors to automatically recoup at least some of their investment.