What is the New Brunswick Small Business Investor Tax Credit?
The New Brunswick Small Business Investor Tax Credit is a 50 per cent (for investments made after April 1, 2015) non-refundable personal income tax credit of up to $125,000 per year (for investments of up to $250,000 per individual investor) to eligible investors who invest in eligible small businesses, community economic development corporations or associations in the province. The New Brunswick Small Business Investor Tax Credit Program started August 1st, 2003.
Effective January 1, 2014, the Small Business Investor Tax Credit legislation enables New Brunswick corporations and trusts to be eligible for a 15% non-refundable corporate income tax credit on eligible investments up to $500,000. This represents a tax credit up to $75,000 for New Brunswick corporate and trust investors who invest in eligible small businesses in the province.
What is a non-refundable tax credit?
A non-refundable tax credit reduces the amount of provincial income tax otherwise payable by a taxpayer, a corporation or a trust up to the amount of provincial income taxes owing.
What happens if I cannot use all of my Small Business Investor Tax Credit allowed in a given year?
The tax credit can be carried forward seven years or back three years.
When must the investment be made in order for the tax credit to be used in a given taxation year?
A tax credit is normally applied against the same taxation year as when the investment is made. However, for an individual investor only, when an investment is made within 60 days of the end of the calendar year, the tax credit can be claimed in the previous taxation year. For a corporation or a trust, the tax credit will apply for the taxation year in which the investment was made.
An individual who is at least 19 years of age and is a resident of New Brunswick or a corporation or trust that has a permanent establishment in New Brunswick.
Is a minimum number of investors required?
The minimum number of investors required is three.
Is a minimum amount of investment required?
Each individual investor must invest a minimum of $1,000 while a corporation or trust must invest a minimum of $50,000. Each investment plan must raise a minimum of $10,000 in capital if all investors are individuals.
Will my investment be eligible for the RRSP deduction?
The Small Business Investor Tax Credit Program will follow the Canada Revenue Agency rules on eligibility for RRSP deductions.
For inquiries on the eligibility of your investment, contact Canada Revenue Agency at:
Individual Inquiries: 1-800-959-8281 or visit https://www.canada.ca/en/revenue-agency.html.
As an investor, how do I participate in the Small Business Investor Tax Credit program?
You must buy shares in a small business, community economic development corporations or associations registered under the Small Business Investor Tax Credit program.
How do I find out if a corporation is registered under the Small Business Investor Tax Credit program?
The Government of New Brunswick cannot disclose which businesses/corporations, community economic development corporations or associations are registered under the Small Business Investor Tax Credit program. A Certificate of Registration is issued to all corporations, community economic development corporations or associations registered under the Small Business Investor Tax Credit program. In order for a potential investor to determine if a corporation, community economic development corporation or associations is registered, the potential investor must ask the corporation, community economic development corporation or associations to see the official Certificate of Registration.
Does the provincial government guarantee any portion of my investment?
No. The Province of New Brunswick does not guarantee the value of any shares issued by an eligible corporation, community economic development corporation or association nor does it express an opinion as to the financial condition of the eligible corporation, community economic development corporation or association. Investors invest entirely at their own risk. Prior to investing, investors may want to seek business advice from their financial advisor.
Which business sectors are eligible to participate in the Small Business Investor Tax Credit program?
All business sectors with active business income as defined by the Federal Income Tax Act are eligible to participate.
How does a small business, community economic development corporation or association register under the Small Business Investor Tax Credit program?
The business, community economic development corporation or association must submit an application to the Minister of Finance to obtain approval to make a specified issue of shares under the Small Business Investor Tax Credit program.
A fee of $100 applies to each application for a Certificate of Registration under the program.
After the application for registration has been approved and the eligible shares are sold, the applicant small business, community economic development corporation or association must file the form to request, within 30 days after the issuance of shares, the tax credit certificate for each investor. A fee of $25 applies to each investor tax credit certificate requested.
What types of shares are eligible under the Small Business Investor Tax Credit program?
An eligible share is a newly issued share of the capital stock of a corporation, community economic development corporation or association that is registered under the Small Business Investor Tax Credit Act, but does not include a replacement share. Eligible investments do not include shares that, in the opinion of the Minister of Finance, were or will be issued with the main purpose to claim the tax credit under the Small Business Investor Tax Credit program.
If an investor has disposed, at any time after December 10, 2002, of a share of any class of shares of a corporation that is registered under the Small Business Investor Tax Credit Program and purchases a share in the corporation under the Small Business Investor Tax Credit program; then, the newly purchased share is considered to be a “replacement share” and the investment is not eligible for the tax credit. For a community economic development corporation or association, shares disposed after February 4, 2014 are considered replacement shares.
What criteria are required to register a corporation under this program?
To register in the Small Business Investor Tax Credit program, a corporation must:
- Be a private company
- Be incorporated or registered to carry on business in New Brunswick
- Have authorized capital consisting of shares without par value
- Have net tangible assets of $40 million or less (including associated corporations)
- Have all, or substantially all, of the corporation’s assets and income being used to generate active business income
- Pay, in each of the four years after the date of registration, at least 75 per cent of its wages and salaries to individuals who are residents of New Brunswick unless the corporation exports outside of NB more than 50% of their goods and services, then, the requirement is for 50% of its wages and salaries to individuals who are residents of New Brunswick..
What criteria are required to register a community economic development corporation or association under this program?
To register in the Small Business Investor Tax Credit program, a community economic development corporation or association must:
- Be incorporated or registered to carry on business in New Brunswick
- Have authorized capital consisting of shares without par value for community economic development corporations
- Have net tangible assets of $40 million or less (including associated corporations/association)
- Have all, or substantially all, of the community economic development corporation or association’s assets and income being used to generate active business income
- Pay, in each of the four years after the date of registration, at least 75 per cent of its wages and salaries to individuals who are residents of New Brunswick unless the community economic development corporation or association exports outside of NB more than 50% of their goods and services, then, the requirement is for 50% of its wages and salaries to individuals who are residents of New Brunswick..
What is active business income?
The Small Business Investor Tax Credit Program will follow the Canada Revenue Agency rules on active business income. For further information call 1-800-959-5525 or visit https://www.canada.ca/en/revenue-agency.html
What type of information will be required from a corporation, community economic development corporation or association, which applies for registration under the Small Business Investor Tax Credit program?
- Completed application form
- Investment plan or Community economic development plan
- Copy of the income tax return from the previous taxation year (including those of associated corporations/associations)
- Copy of the most recent financial statements of the corporation, community economic development corporation (including those of associated corporations/associations) for which an independent review engagement has been conducted or the statements have been independently audited by a chartered professional accountant.
- Copy of the instrument of incorporation certified by an officer of the corporation, community economic development corporation or association
- Copy of the share registry and the share transfer registry certified by an officer of the corporation, community economic development corporation or association
- Certificate signed by the directors of the corporation, community economic development corporation or association to certify that the information contained in the application is complete and accurate
- Statement signed by the investor to certify that he or she understands the holding requirements for the shares and has read the investment plan.
What kind of information should be included in the investment plan?
- Name of the corporation
- Amount of capital to be raised under the plan (minimum amount of capital to be raised is $10,000 – if all investors are individuals.)
- Proposed use of capital raised
- Full names of the directors and officers of the corporation and their residential addresses
- full name of each eligible individual investor, who is at least 19 years of age and is a resident of New Brunswick, including the investor’s social insurance number and residential address. For each eligible corporation or trust investor, full name of the corporation or trust, their NB Corporate Affairs registration Number, contact person and mailing address (minimum number of investors required is three)
- Number of shares subscribed for and the amount to be paid by each eligible investor (minimum amount to be invested by each individual investor is $1,000 and the minimum for corporation or trust is $50,000)
- Number of shares of the corporation held at any time by each eligible investor.
What kind of information should be included in the community economic development plan?
- Name of the community economic development corporation or association
- a mission statement outlining the economic development strategy and the defined community it intends to serve
- amount of capital to be raised under the plan (minimum amount of capital to be raised is $10,000 if all investors are individuals. The minimum investment for any corporation and trust investor is $50,000. The maximum amount of capital to be raised is $3,000,000 in a 12-month period)
- proposed use of funds raised
- full name of the directors and their residential address
- full name of each eligible individual investor, who must be at least 19 years of age and a New Brunswick resident, including the investor’s social insurance number and residential address. For each eligible corporation and trust investor which must have a permanent establishment in New Brunswick, the legal name of the corporation or trust and the business number have to be provided (minimum number of investors required is three)
- number of shares subscribed for and the amount to be paid by each eligible investor (minimum amount to be invested by each individual investor is $1,000 and by corporation and trust investor is $50,000)
- number of shares of the community economic development corporation or association held at any time by each eligible investor.
Why do corporations have to provide personal or corporation or trust details on the investors at the time of application for a Certificate of Registration into the program? At time of application corporations may not know who their investors are.
In order to be eligible under the program, corporations must be private companies. As such, they are not allowed to publicly solicit investors. It is anticipated that companies would bring in individuals, corporations or trusts that they know and trust. Because we anticipate that many small businesses will be interested in the program, in order for government to be administratively more effective and responsive, companies must identify in their investment plan that they, indeed, have serious potential individuals, corporations or trusts interested in investing in their business.
What are the holding requirements of the shares?
The investor must hold the shares for four years after the purchase or the tax credit will have to be repaid with interest.
Are there any restrictions on the use of the capital?
The capital raised can be used for anything except:
- lending
- acquisition or purchase of the shares of another person
- investment outside New Brunswick
- investment in land, except land that is incidental and ancillary to the active business in which the corporation is primarily engaged
- funding all or part of the purchase of any service or asset at a price that is greater than the fair market value
- purchasing services or assets from the Province or an agency or corporation of the Province to be used in a similar business activity and the corporation has received financial assistance from any level of government in order to purchase these services or assets
- redemption or purchase of previously issued shares of the corporation or associated corporation
- retirement of any shareholder liability of the corporation or associated corporation
- payment of dividends
- purchasing of an existing business.
Is there any circumstance when I would not have to repay the tax credit before the four-year holding period is up?
This would only occur upon the death of the shareholder who was an individual eligible investor
Effective January 1st, 2014, if , before the expiry of the four year holding period, a corporation, community economic development corporation or association goes into receivership or into bankruptcy, the corporation, community economic development corporation or association will immediately pay, to the Minister of Finance and Treasury Board, an amount calculated as a percentage of the full value of tax credit certificates issued. The percentage is to be derived by dividing the number obtained by subtracting from 48 the number of months the eligible shares were held by 48.
Where can I get application forms and additional information about the Small Business Investor Tax Credit program, including the act and regulations governing it?
Telephone: (800) 669-7070
Fax: (506) 444-5086
Internet: http://www.gnb.ca/finance
E-mail: [email protected]
Mailing Address:
Small Business Investor Tax Credit Program
Finance and Treasury Board
Marysville Place,
P.O. Box 3000,
Fredericton, NB E3B 5G5