First

Session, 45th General Assembly

Elizabeth II, 2004

BILL 58

AN ACT RESPECTING

LABOUR-SPONSORED

VENTURE CAPITAL TAX CREDITS

Received and Read the First Time ...................................................................................................

Second Reading .................................................................................................................................

Committee ............................................................................................................................................

Third Reading .....................................................................................................................................

Royal Assent ......................................................................................................................................

HONOURABLE

LOYOLA SULLIVAN

Minister

of Finance and President of Treasury Board

Ordered

to be printed by the Honourable House of Assembly

EXPLANATORY NOTE

This Bill would provide for the

granting of tax credits to eligible investors in corporations that qualify for

designation as labour-sponsored venture capital corporations.

A BILL

AN ACT RESPECTING LABOUR-SPONSORED VENTURE

CAPITAL TAX CREDITS

Analysis

Short title

Definitions

Share excluded

Registration of labour-sponsored venture

capital corporation

Revocation of certificate of

registration

Penalty

Labour-Sponsored Venture Capital

Corporation Trust

Tax credit certificate

Payment to minister where no entitlement

and repayment

Register

Filing of returns with minister

Maintenance and location of records

Appointment of inspectors

Inspection of records

Considered refusal

Extension of time

Offences and penalty

Regulations

Be it enacted by the Lieutenant-Governor and

House of Assembly in Legislative Session convened, as follows:

Short title

1. This

Act may be cited as the Labour-Sponsored

Venture Capital Tax Credit Act .

Definitions

2. In

this Act

(a) "active business" means a business

carried on in Canada , other than a specified investment business or a personal services

business as defined in the Income Tax Act

( Canada );

(b) "corporation"

means a taxable corporation incorporated under the laws of the province,

another province of Canada or Canada ;

(c) "eligible shares" means fully paid, newly issued voting common shares of the

labour-sponsored venture capital corporation, issued on or before December 31,

2014, that are non-redeemable, non-convertible, not restricted in profit

sharing or participation upon dissolution and not eligible for a tax credit

allowed under the Income Tax Act (Canada),

other than under subsection 127.4(2), or a deduction from income under that

Act, other than a deduction under subsection 146(5) of that Act ;

(d) "eligible

investor" means an individual who is a resident of the province and who is

at least 19 years of age, or a trust that is governed by a Registered

Retirement Savings Plan where the individual makes contributions to the trust

and those contributions, and no other funds, can reasonably be considered to

have been used by the trust to acquire or subscribe for the share, and the annuitant

under the plan is the individual or a spouse of the individual;

(e) "labour-sponsored venture capital

corporation" means a corporation registered under subsection 204.81(1) of

the Income Tax Act (Canada) that has

subsequently been registered by the minister under this Act; and

(f) "minister" means the minister appointed under the Executive Council Act to administer

this Act.

Share excluded

3. Notwithstanding paragraph

2(c), an eligible share does not include a share that, in the opinion of the

minister, is or will be issued as a result of a transaction or event or a

series of transactions or events the main purpose of which is to claim the tax

credit under this Act.

Registration of

labour-sponsored venture capital corporation

(1) A corporation that intends to make an

issue of eligible shares to an eligible investor on or before December 31,

2014, and that meets the criteria prescribed by regulation may apply for

registration under this Act by delivering to the minister, in a form acceptable

to him or her, an application containing the information required by the minister.

(2) The

minister may, in his or her absolute discretion, register a labour-sponsored

venture capital corporation, with conditions that the minister considers

appropriate, on being satisfied that

(

a) the

corporation meets the criteria prescribed by regulation; and

(

b) the

issue of eligible shares complies or will comply with the purpose of this Act.

(3) Where the minister registers a

labour-sponsored venture capital corporation, the minister shall issue a certificate

of registration.

(4) The

certificate of registration constitutes approval as of the date of

registration, for the labour-sponsored venture capital corporation to raise the

equity capital referred to in the application.

Revocation of certificate of registration

5. The minister may, at any time after a certificate

of registration has been issued, suspend the issuance of provincial tax credits

respecting a labour-sponsored venture capital corporation or revoke the certificate

where

(

a) in the opinion of the minister, the registered

labour-sponsored venture capital corporation has not complied with a provision

of this Act or the regulations or the purpose of this Act and the regulations;

(

b) the labour-sponsored venture capital

corporation has been suspended or otherwise restricted from issuing shares; or

(

c) the labour-sponsored venture capital

corporation has failed to meet another condition required for registration.

Pen a lty

(1) In each year, the minister shall impose a penalty, at a rate of 3% per year of

the labour-sponsored venture capital corporation's cumulative investment

shortfall, where an investment shortfall occurs that is the difference between

the cumulative amount of capital that is required to be invested in eligible

business entities by year end, as prescribed by the regulations, less amounts

that actually were invested in eligible business entities.

(2) The labour-sponsored venture capital

corporation is required to pay the penalty under subsection (1) within 90 days

of the end of the year in which the investment shortfall occurred and to which

the penalty relates.

(3) Where a

labour-sponsored venture capital corporation is required to pay a penalty under

subsection (1), the minister may assess interest from the date that the payment

is required to be made to the date the payment is made, at a rate prescribed by

regulation.

(4) The minister may remit a penalty under this

section provided that the labour-sponsored venture capital corporation submits

a plan satisfactory to the minister, to meet the investment requirements under

the regulations, and executes that plan to the satisfaction of the minister.

(5) Where the minister has remitted a penalty

under subsection (4), he or she shall refund the amount paid.

Labour-Sponsored

Venture Capital Corporation Trust

(1) A labour-sponsored venture capital corporation shall set aside in a trust fund

an amount of money equal to the amount of the tax credits issued to eligible investors.

(2) The labour-sponsored venture capital

corporation shall appoint a trustee acceptable to the minister to administer

the trust and the trustee shall hold the trust fund in trust jointly, to be

dealt with in accordance with this section, for

(

a) the labour-sponsored venture capital corporation;

and

(

b) the Crown.

(3) Where the certificate of registration of a

labour-sponsored venture capital corporation is revoked, money then remaining

in the trust fund established under subsection (1) is immediately payable to

the Crown.

(4) A trustee who fails to make the payment to the

Crown required by subsection (3) is liable to the Crown for the amount required

to be paid under that subsection.

(5) Where a labour-sponsored venture capital

corporation has invested in an eligible business entity, the trustee may pay

over to the labour-sponsored venture capital corporation fund, from the trust

fund, an amount prescribed by regulation.

(6) Money held in trust under subsection (1) shall

not be paid out to a person unless the minister consents in writing to that payment.

Tax credit certificate

(1) Where a registered labour-sponsored

venture capital corporation has made an issue of eligible shares to an eligible

investor,

(

a) upon application from the labour-sponsored

venture capital corporation for tax credit certificates for eligible investors,

the minister shall issue tax credit certificates, entitling each of the

eligible investors to a tax credit equal to 15% of the amount received by the

labour-sponsored venture capital corporation in that calendar year, or within

60 days of the end of the calendar year, for shares issued to those eligible

investors as part of the issue of shares by the labour-sponsored venture

capital corporation; and

(

b) notwithstanding paragraph (a), the minister

may authorize the labour-sponsored venture capital corporation to issue tax

credit certificates to eligible investors.

(2) The minister may refuse to issue or limit the

amount on a tax credit certificate under subsection (1) unless the minister is

satisfied that

(

a) the

labour-sponsored venture capital corporation and its eligible investors are

complying with this Act;

(

b) the

eligible shares do not constitute the type of security that entitles the

holder, in respect of the acquisition of those shares,

(

i) to claim a tax credit under the Income

Tax Act ( Canada ), other than under subsection 127.4(2) , against income tax payable,

(ii) to claim a deduction from income under the Income Tax Act, 2000 or the Income

Tax Act (Canada) other than a deduction under subsection 146(5) of the Income Tax Act (Canada), or

(iii) to receive other financial assistance from a

government, municipality or public authority;

(

c) no

tax credit has previously been allowed for those shares under the Income Tax Act, 2000 or the Income Tax Act ( Canada );

(

d) the aggregate of all entitlements in respect

of the eligible investor for all tax credit certificates applied for in the

year does not exceed $750;

(

e) the

aggregate of all tax credits under this Act for the year does not exceed the

amount, if any, prescribed by regulation;

(

f) other prescribed conditions have been met; and

(

g) the labour-sponsored venture capital corporation

or its directors, officers or shareholders are not conducting their business or

affairs in a manner that is contrary to the purpose of this Act and the

regulations.

(3) Notwithstanding subsection (1) and paragraph

(2)(d),

(

a) a tax credit issued by the minister within 60

days of December 31, 2004, may not be applied to taxes payable under the Income Tax Act, 2000 in the 2004

taxation year; and

(

b) for the 2005 taxation year, the aggregate of

all entitlements in respect of the eligible investor for all tax credit

certificates applied for in the year does not exceed

(

i) the lesser of 15% of the amount received by t he labour-sponsored venture capital corporation

for eligible shares issued within 60 days of December 31, 2004 and $750, plus

(ii) $750.

Payment to minister where no entitlement

and repayment

(1) Where a person has received, directly

or indirectly, the benefit of a tax credit to which the person is not entitled,

the amount of the benefit is payable immediately by that person to the

minister.

(2) A

person who disposes of a share, in respect of which a tax credit has been

allowed, within 8 years from the date of purchase shall pay to the minister

(

a) an

amount equal to the tax credits received in respect of those shares, including

interest, where prescribed by regulation; or

(

b) a

lesser amount determined under the regulations in prescribed circumstances.

(3) Where a director or officer of a

labour-sponsored venture capital corporation, a member of a group that controls

the labour-sponsored venture capital corporation or a shareholder that controls

the labour-sponsored venture capital corporation permits or acquiesces to a

transaction or event or a series of transactions or events that the person knew

or ought to have known would cause the certificate of registration to be

revoked, that person is jointly and individually liable for the payment under

subsection (2).

(4) An amount required to be paid to the minister

under this Act is a debt due to Her Majesty in right of the province.

Register

10. The minister shall make public

the name and address of a corporation that has been registered or a corporation

whose registration has been revoked, as well as other information the minister

may consider necessary.

Filing of returns with minister

11. Within 180 days after the end of each of the

fiscal years commencing with the fiscal year of registration, and continuing for 8 years after the final sale of

eligible shares in the province, a labour-sponsored venture capital corporation

shall file

a return with the minister setting out the information as required by the

minister.

Maintenance and location of records

(1) A labour-sponsored venture capital

corporation that is registered under this Act shall maintain records in the

form and containing the information the minister considers necessary to

determine that this Act and the regulations are being complied with.

(2) The

labour-sponsored venture capital corporation shall keep the records at its

provincial office or at other places approved by the minister.

Appointment of

inspectors

(1) The

minister may appoint or designate persons or a class of persons as inspectors

for the purposes of this Act and the regulations.

(2) The minister may authorize a person employed

in the department or a person or class of persons designated under subsection

(1) to perform and exercise those duties imposed and powers conferred by this

Act upon the minister that may, in the opinion of the minister, be conveniently

performed or exercised by that person and the performance or exercise of those

duties or powers by the person so authorized shall be of the same effect as if

they were performed or exercised by the minister.

Inspection of records

(1) For the purpose of determining

compliance with this Act, an inspector may, during normal business hours, make

an examination of the books of account, records, financial statements or other

documents of

(

a) a

labour-sponsored venture capital corporation that is registered under this Act;

(

b) a

person who is or was a shareholder of the labour-sponsored venture capital

corporation; and

(

c) an eligible business entity.

(2) In the course of an examination under

subsection (1), the inspector may make copies of those books of account,

records, financial statements or other documents.

Considered refusal

15. Where the minister does not register a

labour-sponsored venture capital corporation within 90 days after receipt of

the application, the minister is considered to have refused to register it.

Extension of time

16. The minister may extend, with or without

conditions, the time limit for the doing of anything under this Act or the

regulations and may grant the extension notwithstanding that the time limit to

be extended has expired.

Offences and penalty

(1) A person is guilty of an offence who

(

a) refuses or wilfully neglects to produce, as

required under this Act, books of account, records, financial statements or

other documents to a person entitled under this Act to inspect, examine or

audit them;

(

b) refuses or wilfully neglects to answer a

question put to him or her by a person entitled under this Act to ask that

question relating to a matter for which an answer is required under this Act;

(

c) refuses or wilfully neglects to file a return

or make a report required from him or her under this Act;

(

d) files or makes a false or misleading return or

report or gives false or misleading answers or information in a return or report

under this Act, or makes a false or misleading answer to a question put to him

or her by a person entitled to do so relating to a matter concerning which he

or she is required under this Act to answer;

(

e) destroys, alters, mutilates, secretes or

disposes of books of account, records, financial statements or other documents

required to be kept under this Act;

(

f) fails to produce for inspection when requested

to do so, books of account, records, financial statements or other documents;

(

g) makes, permits, assents to, or acquiesces in,

the making of false or misleading entries or omissions in the books of account,

records or documents required to be kept under this Act.

(2) Where a labour-sponsored venture capital

corporation registered under this Act is guilty of an offence under subsection

(1),

(

a) the

labour-sponsored venture capital corporation is liable on

summary conv i ction to a fine of not less than $5,000 and not

more than $100,000; and

(

b) every

director or officer of the labour-sponsored venture capital corporation who

authorized, permitted or acquiesced in the offence is guilty of an offence and

is liable on

summary conviction to the penalties provided for the offence

whether or not the labour-sponsored venture capital corporation has been

prosecuted or convicted.

Regulations

(1) The Lieutenant-Governor in Council may

make regulations

(

a) requiring a person to supply information or

returns respecting a matter required in determining compliance with this Act;

(

b) defining a word or expression used but not

defined in this Act;

(

c) prescribing

criteria for registration of labour-sponsored venture capital corporations;

(

d) prescribing the time period for investment of

capital by the labour-sponsored venture capital corporation into eligible

business entities;

(

e) prescribing a maximum amount of tax credits to

be issued in a year in respect of a labour-sponsored venture capital corporation;

(

f) prescribing conditions relating to the

repayment of tax credits where an eligible investor has not complied with this

Act;

(

g) prescribing the time period for filing returns

or any other information required to be filed under the Act;

(

h) prescribing

the manner and method of calculating interest on an amount due under the Act

and unpaid;

(

i) prescribing the amount that may be paid to the

labour-sponsored venture capital corporation from the trust funds; and

(

j) to generally carry out the purpose of this

Act.

(2) Regulations under this

section may be made

retroactive to January

1, 2005 .

Earl G. Tucker, Queen's Printer