What is the NS Equity Tax Credit?

The Nova Scotia Equity Tax Credit offers a personal income tax credit to individuals investing in eligible businesses through equity financing. The investments are supposed to be in small businesses, co-operatives, utilized labor-sponsored, and community economic development initiatives. 

The Equity Tax Credit Act of 1993, initiated by the Nova Scotian government, was aimed to increase investment in industry and business. 

Both the investor and the eligible businesses’ have benefited from the Act because it provides tax breaks to investors and encourages capital investments in the industry. 

The program has soared in popularity and investors have used it to benefit from the capital they have invested. 

What the Act Does

It provides eligible investors with a tax credit based on the capital they have invested in a business. The business that receives the capital must use it for eligible investments. 

Nova Scotia Innovation Equity Tax Credit

This tax incentive is for the corporations’ residents that make eligible capital investments in small and medium-sized businesses, operating in Nova Scotia. These eligible businesses should be involved in innovative activities between March 31, 2019, and before March 1, 2024. 

The percentage of the credit for investment received by corporations is 15%. While the minimum annual investment should be $50,000 and the maximum amount should be $500,000.

The tax credit offered can not be refunded and you will have to apply for it, so the tax payable for the year is reduced. Unclaimed credits can be used to file tax returns for the three previous tax years ending after April 1, 2019. You can also carry them forward to the next seven tax years. 

Corporations or individuals will be provided with a tax credit certificate by the Nova Scotia Ministry Of Finance & Treasury Board for investing in an approved active business. 

Eligibility

Investment Amount 

The limit on the investments has been increased to $250,000 from $50,000 in an eligible business. The IETC will be approved and provide a tax credit for individuals who wish to invest in business services of up to $87,500. This was previously $17,500 based on a 35% credit. Investments in the life sciences and ocean technology sectors are now eligible for a 45% credit of up to $112,500. For further details on individual investors see: For Investors  

For an investment in a qualified business, there must be three or more investors.  The investor should be a resident of Nova Scotia and above the age of 18. The Income Tax Act Nova Scotia is used to determine residency. The individual should be a taxpayer to the provincial government of Nova Scotia in the year they have claimed the tax credit. 

Businesses

The purpose of Equity Tax Credit is to create a business climate that provides funding opportunities to investors and businesses. 

However, there are several restrictions, to be eligible a business must have its head office located in Nova Scotia. They must be paying 25% of their salaries and wages to local workers from Nova Scotia. The assets and revenues of that business should be worth less than $25,000,000 and the business should be an active business which means that 90% of the assets and property should be utilized actively for commercial purposes. Additionally, they can hold common shares of a corporation that is an eligible business. 

Eligible businesses include corporations, community economic development corporations, co-operatives, associations, and labor-sponsored venture capital corporations. 

Investments in corporations and associations incorporating professional practices such as dentists, medical doctors, chiropractors are not covered by this financial incentive and they will not be provided with a tax credit.

Businesses must pay 50% of their wages and salaries in Nova Scotia, to be eligible for ETC. This is an increase of 25% from the 25% required for ETC. The total value of an eligible firm’s assets has also been lowered, from $25,000,000 to $15,000,000. You can get further information that can help you here at: For Business & Guide for Private Corporations & Co-operatives

Investment 

The IETC has helped broaden the horizons of possible investment in Canadian companies for the business community that can be claimed in tax credit. Previously, ETC offered non-redeemable, non-convertible, fully paid, voting common shares. Now under the IETC regulations, the issuance of preferred shares and convertible instruments is permitted. Although there are still some limitations and restrictions on the redemption and payout, they have been eased if we compare them to ETC.

In short, the Nova Scotia government’s goal for amending the Equity Tax Credit (“ETC”) into the Innovative Equity Tax Credit (“IETC”) is to provide the Atlantic province’s businesses and enterprises with more funding opportunities and provide strong incentives for the community investors to take part in. 

For further understanding read these community investment guidelines:   Guide for CEDIFs & CEDIF Historical Amounts Raised

TakeAways

The Nova Scotia government’s initiative to enact the Equity Tax Credit Act was to encourage investments in Nova Scotian businesses. 

Currently, the Department of Finance is facilitating and helping potential investors with an easy-going approach to the Act. The Act has been approved for implementation and the government departments involved are making every effort to ensure that the tax credit is awarded to investors wherever possible.

As an investor or a businessman, residing in Nova Scotia, taking advantage of the NS Equity Tax Credit is certainly advantageous.

Talk With A Halifax Financial Advisor

Being an investor, you need to have situational awareness at every moment so you can make informed decisions. But with the ever-changing government policies and laws, it can become difficult to keep up. You can easily lose track and find yourself in a situation that can harm your interests. 

Worthy Financial, based out of Halifax, NS, offers financial advice that is unbiased and based on facts and figures. Their advisors provide an environment of inclusivity and accessibility so you always have a strategy to deal with the financial matters that come your way.