The Canadian Government is negotiating on a series of draft legislative proposals for the orderly phase-out of the federal Labor-Sponsored Venture Capital Corporations (LSVCC) tax credit. LSVCCs are a type of mutual fund corporation, sponsored by labor unions or other labor organizations that make risk capital investments in small and medium-sized businesses. Individuals who acquire LSVCC shares of up to CAD5,000 (USD4,273) a year can take a 15% federal tax credit. This type of tax incentive is aimed at increasing the participation of individuals in providing venture capital that can benefit start-up companies or enterprises.
Tax credit will be phased out by 2017 and it was declared by the Canadian Finance Minister in his 2013 Budget. Federally registered LSVCCs are prescribed for the purposes of the Income Tax Act that allows individuals investing in regionally registered LSVCCs to claim the federal tax credit. Public consultations on the tax rules governing LSVCCs were launched in May, with the Finance Department seeking public input on potential technical changes to the rules related to investment requirements, wind-ups, and redemptions.
The transitional rules unveiled this week build on the feedback received during the consultations. Investment rules and penalties will be deleted in the case of federally registered LSVCCs that give notice of their intent to exit the program.
