Innovation Equity Tax Credit

By mmuise
Description:

The Innovation Equity Tax Credit (Innovation ETC) is a non-refundable personal and corporate income tax credit available to eligible investors who invest in an approved corporation. The credit is meant to encourage investors to make equity capital investments in eligible Nova Scotia small and medium corporations engaged in innovative activities.


Comments on Funding:

The credit is equal to 35% of eligible investments made in approved corporations, up to $ 87,500. It increases to 45% for eligible investments made in approved corporations in eligible classifications within the oceans technology and life sciences sectors, up to $ 112,500.
The maximum annual investment amount is $250,000.
For corporations, the credit is equal to 15% of the eligible investment. The minimum investment amount is $50,000 and the maximum annual investment amount is $500,000.

Deadline: Rolling deadline
Eligibility:

The applicant must:

  • be a taxable Canadian corporation,
  • carry-on a business in Nova Scotia (and be registered in Nova Scotia),
  • be incorporated less than 10 years ago,
  • have its head office in Nova Scotia,
  • use all or substantially all of its assets in an active business,
  • have less than $15 million in assets (including assets of associated corporations),
  • have fewer than 100 employees (including employees of associated corporations),
  • pay at least 50% of its remuneration to employees or full-time contractors who are residents of Nova Scotia and report to or deal with a permanent establishment of the corporation in Nova Scotia,
  • have authorized capital consisting of at least 1 class of common voting shares,
  • be developing or implementing new technologies or applying existing technologies in a new way to create new products, services or processes.
    1
  • not fall under any of the restrictions below:
    a) its principal business includes: construction, developing, leasing or selling real property, hotel ownership or management, retail, including food and beverage services, oil or gas exploration, development and production, film, digital animation, or digital media, membership based recreational activities, financial or insurance services,
    b) it is incorporated for a self-regulated professional practice,
    c) it is a business for which public financial support would be contrary to public policy,
    d) it has been issued a Film Industry Tax Credit, Digital Media Tax Credit, Digital Animation Tax Credit, or Capital Investment Tax Credit,
    e) it has been approved for or received a payroll rebate or an innovation rebate from Nova Scotia Business incorporated,
    f) it has raised (along with all associated corporations) more than $5 million through previous specified issues.
    An eligible investor is an individual who is a resident of Nova Scotia and at least 19 years of age or a taxable Canadian corporation which is registered to carry on business in Nova Scotia, has its head office in Nova Scotia, and is not a qualifying venture capital fund under section 27B of the Income Tax Act (Nova Scotia).
Application Steps:

The applicant must:

1. apply for a Certificate of Registration before accepting investments from eligible investors by submitting the completed application packages via email to the Innovation ETC Administrator.

2. Issue eligible investments to eligible investors through a specified issue.

3. apply for Tax Credit Certificates on behalf of all eligible investors who made eligible investments during the time the corporation was registered under the program. The application for Tax Credit Certificates must be received by the department within 6 months of the expiry date on the corporation's Certificate of Registration.

4. submit an annual return to the Innovation ETC administrator for each of the 4 years after the expiry date on the certificate of registration.

Documentation Needed:

To apply for the Certificate of Registration the applicant must submit:
1. the completed and signed application form,
2. the financial statements for the previous tax year, together with a review engagement report or auditor’s report, for the applicant corporation and for all corporations associated with the applicant corporation,
3. T2 Corporate Income Tax Return for the previous tax year of the applicant corporation and of all corporations associated with the applicant corporation (including all forms and schedules),
4. an up-to-date and notarized shareholder’s register,
5. the corporate chart/structure, if applicable,
6. the shareholder agreements, if any,
7. the debenture agreements, if any,
8. the proposed investor forms completed by all proposed eligible investors,
9. a brief business plan,
10. the Certificate of incorporation, constitutio rticles of incorporation and memorandum of association.
To apply for the Tax Credit Certificates the applicant must submit:
1. the completed Application Form,
2. the up-to-date and notarized shareholder’s register,
3. an Investor Data Report in Excel,
4. copy of each share certificate or convertible debenture issued to each eligible investor showing the terms of the share/debenture,
5. a signed statement from an authorized officer of the corporation.
6. signed statements from each eligible investor,
7. proof of payment from each eligible investor displaying the amount invested and date of investment.

Other Things to Note:

Guideline Released: August 2023

About the author
mmuise