Direct Equity Tax Credit
The Direct Equity Tax Credit Program (DETC) is designed to encourage private investment in new or expanding small businesses as a means of creating new jobs and diversifying the economy. An investment credit, in the form of a provincial income tax credit, is available to individuals and arm’s length corporations who invest as shareholders in eligible small business activities.
Offered by Department of Finance
Amount
Tax credit of 35% of the investment where qualifying activities are outside the North East Avalon or 20% within it; maximum annual tax credit of $50,000 per eligible investor; maximum capital raised of $3,000,000 per eligible company offering or project
Quick eligibility check
Who can apply
Applicants must be:
- individuals 19 years of age or older who are residents of Newfoundland and Labrador or otherwise paying income tax to the Province,
- corporations which operate at arm’s length from the eligible business.
In order to qualify as an eligible business, a corporation shall:
- be a Canadian controlled corporation and not a publicly traded corporation,
- have a permanent establishment in Newfoundland and Labrador,
- have less than $20 million in assets, including associated corporations,
- utilize in the province all of the capital raised from the specified issuance,
- have no more than 50 full time equivalent positions,
- have at least $25,000 of either or both of shareholder equity and shareholder loans before applying for certification,
- must be engaged in, and will utilize funds for, qualifying activities (technology, research and development, aquaculture, forestry and agrifoods, manufacturing and processing, export / import replacement businesses, tourism, cultural industries).
About the funding
Targeting Outside North East Avalon
There are two tax credit rates. Where the qualifying activities are undertaken in the Province outside the North East Avalon, a 35% rate applies. Where the qualifying activities are undertaken within the North East Avalon, a 20% rate applies. Where qualifying activities are undertaken both inside and outside the North East Avalon, a reasonable pro-ration would apply. The North East Avalon includes Bauline, Conception Bay South, Flatrock, Logy Bay-Middle Cove-Outer Cove, Paradise, Petty Harbour, Portugal Cove-St Philip’s, Pouch Cove, Torbay, Mount Pearl and St. John’s. The location of the investor is not a consideration in determining the tax credit rate.
Company Fund Raising Limits
The maximum capital that any one eligible company may raise in respect to a particular offering or project, for which tax credits could be issued under this program, is $3,000,000.
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Maximum Investor Credit
The maximum annual tax credit per eligible investor is $50,000. For individuals, the tax credit may be claimed in the year in which the eligible shares are purchased, or, if purchased within 60 days of a calendar year, may be claimed in the previous year. For eligible corporate investors, the tax credit would be claimed in the fiscal year in which the investor purchased the eligible shares. The credit is not refundable but may be carried forward for seven years or carried back three years, however, corporate investors can not carry back in fiscal years ending prior to April 1, 2004 and individuals can not carry back prior to the 2000 taxation year. The $50,000 maximum credit includes any carry forward (or back) amounts used in a given year.
Correspondingly, the maximum annual investment in eligible shares is $250,000 in the North East Avalon, where the tax credit rate is 20%, and almost $143,000 outside the North East Avalon, where the tax credit rate is 35%.
- Are there any restrictions on how the investment funds can be used by an eligible company?
Yes. The tax credits are intended to finance the start up, modernization, expansion or growth of an eligible small business.
Claimed through the Canada Revenue Agency on your corporate tax return.
Similar programs
| Program | Type | Amount | Status |
|---|---|---|---|
| Venture Capital Tax Credit | Tax Credit, Investment | Non-refundable tax credit equal to 30% of the amount invested in the qualifying venture capital fund (QVCF), to a maximum tax credit of $75,000 per investor (maximum lifetime investment of $250,000) | Open |
