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2003 Legislative Session: 4th Session, 37th Parliament

FIRST READING

The following electronic version is for informational

purposes only.

The printed version remains the official version.

HONOURABLE RICK THORPE

MINISTER OF COMPETITION, SCIENCE

AND ENTERPRISE

BILL 3 – 2003

SMALL BUSINESS VENTURE CAPITAL

AMENDMENT ACT, 2003

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of the Province of British Columbia, enacts as follows:

Section 1 (1) of the Small Business Venture Capital Act, R.S.B.C. 1996, c. 429, is amended

(

a) by adding the following

definitions:

"annuitant" , in relation to

(

a) a trust governed by a registered retirement savings plan as defined in the Income Tax Act (Canada), means an annuitant as defined in

section 146 (1) of that Act, and

(

b) a trust governed by a registered retirement income fund as defined in the Income Tax Act (Canada), means an annuitant as defined in

section 146.3 (1) of that Act;

"eligible business corporation" means a small business registered

under

Part 2; , and

(

b) by repealing the

definitions of "eligible investment" , "equity

share" and "small business" and substituting the following:

"eligible investment" means an investment permitted by

section 10

or prescribed by regulation;

"equity share" means

(

a) a share of a class of shares whether or not the share carries voting

rights, but does not include a share having prescribed rights and restrictions,

(

b) any warrants, options or rights entitling their holders to purchase

or acquire the shares referred to in paragraph (a), or

(

c) other prescribed securities;

"small business" means a corporation that has no more than 100 employees

calculated in the prescribed manner; .

Section 1 is amended by adding the following subsection:

(6.1) The annuitant of a trust governed by a

(

a) registered retirement savings plan, or

(

b) registered retirement income fund

as defined in the Income Tax Act (Canada) is deemed to have purchased,

held or disposed of shares that are purchased, held or disposed of by the

trust.

3 The following heading is added immediately before

section 2:

Part 1 – Venture Capital Corporation Tax Credits .

4 Sections 2 (1), 3, 21 (4) (

d) and 25 (

a) are amended by striking

out "this Act" wherever it appears and substituting "this

Part" .

Section 3 (1) (

e) is repealed and the following substituted:

(

e) has authorized capital consisting of only either or both of the following:

(

i) common shares without par value having no special rights or restrictions;

(ii) common shares without par value having special rights relating only

to the redemption of the shares by the company.

Section 6 is amended

(

a) by repealing subsection (3) and substituting the following:

(3) The equity capital of a venture capital corporation, including the equity

capital referred to in

section 9, may be limited to prescribed maximum amounts. , and

(

b) by repealing subsection (4).

Section 8 (2) and (3) is repealed and the following substituted:

(2) A venture capital corporation must

(

a) have a prescribed amount invested in eligible investments within the

prescribed time limits, and

(

b) keep that amount in eligible investments for at least the prescribed

period.

(3) A regulation prescribed for the purposes of subsection (2) may prescribe

differently for different circumstances.

Section 9 is repealed and the following substituted:

Additional

equity capital issues

9 If a venture capital corporation proposes to raise additional equity

capital under this Part, other than equity capital that has been approved

under

section 3 (4), it must apply to the administrator who may approve of

raising the additional equity capital subject to any conditions that the administrator

may determine, including but not limited to

(

a) a condition that the shares may only be issued, as the administrator

specifies, to

(

i) investing entities, or

(ii) persons,

as defined in

section 20 (1), and

(

b) setting the maximum consideration for which these shares may be issued

to those investing entities or persons.

Section 10 (1) is repealed and the following substituted:

(1) A venture capital corporation may make an investment in a small

business if the following criteria are met:

(

a) subject to subsection (1.1), the small business, together with its

affiliates, has no more than 100 employees calculated in the prescribed

manner;

(

b) unless otherwise provided by regulation, at least 75% of the wages

and salaries, determined in the prescribed manner, of the small business

are or will be paid to employees who regularly report to work at operations

located in British Columbia;

(

c) the small business is or will be substantially engaged, determined

in the prescribed manner, in British Columbia in prescribed business activities;

(

d) the investment consists or will consist of

(

i) the direct acquisition from the small business of equity shares

issued for the purpose of raising new equity capital,

(ii) the acquisition by the venture capital corporation of equity shares

issued by the small business in prescribed circumstances under a prospectus,

offering memorandum or other disclosure document,

(iii) the acquisition of equity shares of an affiliate of the small

business directly from the affiliate, or

(iv) the acquisition of prescribed limited partnership units;

(

e) the funds paid by the venture capital corporation for

(

i) any equity shares referred to in paragraph (d) (iii) are in turn

invested in equity shares of the small business by the affiliate within

the time limits prescribed under

section 8 (2), or

(ii) any limited partnership units referred to in paragraph (d) (iv)

are in turn invested in equity shares in one or more small businesses

by the limited partnership within the time limits prescribed under

section

8 (2);

(

f) the investment is not and will not be prohibited under sections 12

to 15.

(1.1) Subsection (1) (

a) does not apply in respect of a small business in

which a venture capital corporation previously invested at a time when the

small business had fewer than 100 employees.

Section 11 is repealed.

Section 12 (1) is repealed and the following substituted:

(1) Subject to subsection (3), a venture capital corporation must

not make or hold an investment in a small business if all or part of the proceeds

of that investment are directly or indirectly used or intended to be used

by the small business for any of the following purposes:

(

a) lending;

(

b) investment outside British Columbia;

(

c) investment in land, unless the investment is incidental or ancillary

to the activities, prescribed for the purposes of

section 10 (1) (c), of

the small business;

(

d) acquiring securities other than equity shares from an affiliate of

a small business, or units of a prescribed limited partnership, that complies

with the criteria set out in

section 10 (1) (d) (iii) and (iv);

(

e) purchasing goods or services from

(

i) the venture capital corporation,

(ii) a director, officer or shareholder of the venture capital corporation,

(iii) an associate of a director, officer or shareholder of the venture

capital corporation,

other than

(iv) services of the type described in

section 3 (1) (f) (ii) that are

purchased at fair market value by the small business, or

(

v) goods or services that are sold at fair market value to the small

business in the ordinary course of the seller's business as a seller of

(

f) payment of all or part of a debt obligation, unless

(

i) the administrator considers that the payment is necessary for the

financial viability of the small business, or

(ii) the debt obligation was incurred with the prior approval of the

administrator in anticipation of an investment in the small business by

the venture capital corporation;

(

g) as part of a transaction or series of transactions directly or indirectly

involving any of the following:

(

i) the purchase or redemption of previously issued shares of the small

business or one of its affiliates;

(ii) the retirement of any part of a liability to a shareholder of the

small business or one of its affiliates or to a shareholder's associate

or affiliate;

(iii) the payment of dividends;

(iv) except in prescribed circumstances, the funding of all or part

of the purchase by the small business of all or a substantial portion

of the assets of a proprietorship, partnership, joint venture, trust or

corporation;

(

v) the funding of all or part of the purchase by the small business

of any of the assets of a proprietorship, partnership, joint venture,

trust or corporation at a price that is greater than the fair market value

of the assets purchased;

(vi) other prescribed events;

(

h) other prescribed purposes.

Section 14 (2) (

c) and (

d) is repealed and the following

substituted:

(

c) a director, officer or shareholder of the venture capital corporation;

(

d) a member of any common interest group in respect of the venture capital

corporation;

(

e) another person, for the purpose of that person making an investment

in the venture capital corporation.

Section 15 (1) is amended by striking out "$3 million."

and substituting "$5 million."

Section 17 is repealed and the following substituted:

Changes in eligibility

(1) If a small business in which a venture capital corporation

has made an eligible investment ceases to conform to

section 10 (1) (

b) or

(c), the venture capital corporation must dispose of the investment within

6 months after the small business ceases to conform to

section 10 (1) (

b) or (c).

(2) Subsection (1) does not apply if, within the 6 months referred to in

subsection (1), the circumstances that caused the non-conformance with

section

10 (1) (

b) or (

c) are changed so that the small business again conforms with

section 10 (1) (

b) or (c).

(3) The administrator by written order may

(

a) relieve a venture capital corporation from the requirement under subsection

(1) to dispose of the investment to which subsection (1) applies, or

(

b) extend the period within which the disposition must be made for an

additional period not exceeding 6 months,

if the administrator is satisfied that

(

c) the prescribed requirements, if any, are met,

(

d) the small business' non-conformance with

section 10 (1) (

b) or (

c) was not imminent at the time the venture capital corporation made the investment,

and

(

e) the small business did not use any of the investment proceeds it received

for any purposes set out in

section 12 before ceasing to conform to

section

10 (1) (

b) or (c).

Section 19 is amended

(

a) in subsection (5) by striking out "Minister of Finance and

Corporate Relations" in each place it appears and substituting "Minister of Finance" ,

(

b) by repealing subsection (8) and substituting the following:

(8) The administrator may refuse an authorization under subsection (3) if

the administrator considers that

(

a) the venture capital corporation is contravening or has contravened

this Act or the regulations, or

(

b) the administrator considers that the venture capital corporation or

any of its directors, officers or shareholders are conducting the business

or affairs of the venture capital corporation in a manner that is contrary

to this Act. , and

(

c) in subsection (9) by striking out "or grants under

section

20 (6) of this Act" .

Section 20 is amended

(

a) by repealing subsections (3) and (4) and substituting the following:

(3) A venture capital corporation, on behalf of its shareholders

who are persons, must apply to the administrator, in a form approved by the

administrator, for a tax credit certificate entitling each of those shareholders

to a tax credit under

section 21 of the Income Tax Act , equal to 30%

of the amount received by the venture capital corporation from those shareholders

for those shares, in the then current calendar year or, in the case of a shareholder

who is an individual and who makes an election referred to in

section 21 (16)

of the Income Tax Act , in the 60 days immediately following that

calendar year.

(4) If a venture capital corporation makes an application under subsection

(3), the administrator, following the approval of the minister responsible

for the Income Tax Act and in accordance with the provisions of

section

21 of the Income Tax Act , must issue a tax credit certificate in the

amount referred to in subsection (3), unless

(

a) the venture capital corporation is contravening or has contravened

this Act or the regulations, or

(

b) the administrator considers that the venture capital corporation or

its directors, officers or shareholders are conducting the business or affairs

of the venture capital corporation in a manner that is contrary to this

Act.

(

b) by repealing subsections (5) and (6),

(

c) in subsection (7) by striking out "or authorize payment

of a grant under subsection (6)" ,

(

d) in subsection (7) (

b) to (

d) by striking out "or grant"

wherever it appears, and

(

e) by adding the following subsections:

(9) A tax credit certificate issued under subsection (4) may be revoked

by the administrator if the administrator determines that, at the time the

tax credit certificate was issued or at a subsequent time, the venture capital

corporation was in contravention of this Act or the regulations.

(10) A certificate that is revoked by the administrator is deemed never

to have been issued.

(11) The administrator must promptly give a venture capital corporation

(

a) notice of a refusal to issue a tax credit certificate under subsection

(4) to the venture capital corporation, and

(

b) the reasons for the refusal.

(12) The administrator must promptly give a venture capital corporation

and the minister responsible for the administration of the Income Tax Act

(

a) notice of revocation of a tax credit certificate issued under subsection

(4) to the venture capital corporation, and

(

b) the reasons for the revocation.

Section 21 is repealed.

Section 22 is amended

(

a) in subsections (1), (2) (

a) and (b), (3) and (5) by striking out

"Minister of Finance and Corporate Relations" and substituting

"Minister of Finance" ,

(

b) by repealing subsection (3.1) and substituting the following:

(3.1) If the administrator considers that a venture capital corporation

has

(

a) conducted its business and affairs in a manner consistent with this

Act, and

(

b) incurred investment losses,

the administrator may reduce the amount that would otherwise be payable under

subsection (3) in order to take the investment losses into account. ,

(

c) by adding the following subsections:

(3.2) If the administrator considers that a venture capital corporation

has

(

a) conducted its business and affairs in a manner consistent with this

Act, and

(

b) held an eligible investment for at least 3 years,

the administrator may reduce the amount that would otherwise be payable

under subsection (3) by an amount calculated as follows:

(

c) firstly, multiply that amount otherwise payable by the number of days

the venture capital corporation held the eligible investment;

(

d) secondly, divide the product obtained under paragraph (

c) by 1825

to determine the amount of the reduction.

(3.3) If a venture capital corporation has complied with

section 8 (2) throughout

the period prescribed for the purpose of that section, no amount is payable

under this section. , and

(

d) by repealing subsection (6) and substituting the following:

(6) The amount to be paid to the Minister of Finance under this

section

must not be greater than the aggregate amount of the tax credits issued in

respect of a venture capital corporation's own shares that are acquired or

deemed under this

section to be acquired by it.

Section 25 (

j) is amended by striking out "Minister

of Finance and Corporate Relations" and substituting "Minister

of Finance" .

Section 26 is amended

(

a) by repealing subsection (1) and substituting the following:

(1) In this section, "third party" means

(

a) a director or officer of a

(

i) venture capital corporation, or

(ii) small business in which an investment under

section 10 was made

by a venture capital corporation,

(

b) a member of a common interest group that controls a

(

i) venture capital corporation, or

(ii) small business

described in paragraph (a), or

(

c) a major shareholder of a

(

i) venture capital corporation, or

(ii) small business

described in paragraph (a).

(1.1) If a third party authorizes or acquiesces in a

(

a) transaction or event, or

(

b) series of transactions or events,

that the third party knew or reasonably ought to have known at the time of

the authorization or acquiescence would render a venture capital corporation

liable to the Minister of Finance to make the payment required under

section

22, then the third party is jointly and severally liable for the amount of

the payment. , and

(

b) in subsection (2) by striking out "or a grant" and by striking out "or a grant, as the case may be" .

Section 27 is repealed.

Section 28 is amended

(

a) in subsection (1) by repealing paragraph (

e) and by adding the following paragraph:

(

f) the corporation has no remaining eligible investments that are subject

section 8 (2). , and

(

b) by repealing subsection (3) and substituting the following:

(3) Despite subsections (1) and (2), if the administrator considers that

a venture capital corporation is conducting its business and affairs in a

manner consistent with this Act, the administrator may do any of the following:

(

a) for any time that the administrator considers appropriate, refrain

from revoking the registration of the venture capital corporation;

(

b) permit registration of the venture capital corporation and, for any

time that the administrator considers appropriate, refrain from revoking

the registration of the venture capital corporation;

(

c) issue a tax credit certificate;

(

d) reduce the amount that would otherwise be required to be deposited

into the investment protection account referred to in

section 19.

23 The following

Part is added:

Part 2 – Eligible Business Corporation Tax Credits

Definitions

28.1 In this Part:

"additional equity capital" means additional equity capital raised

by an eligible business corporation under an approval granted to it under

section 28.3 by the administrator;

"eligible investor" means

(

a) a corporation to which

section 2 (2) of the Income Tax Act

applies, or

(

b) an individual to whom

section 2 (1) of the Income Tax Act applies.

Registration

28.2

(1) On application by a small business, in a form approved by

the administrator, the administrator may register the small business as an

eligible business corporation, if satisfied that the applicant

(

a) conforms to paragraphs (

a) to (

c) of

section 10 (1),

(

b) has equity capital of at least $25 000, and

(

c) meets other prescribed requirements.

(2) On registration of a small business as an eligible business corporation,

the administrator must issue a certificate of registration, in a form approved

by him or her, and record in the certificate the date of registration.

Additional equity capital

28.3

(1) An eligible business corporation may apply to the administrator

for approval to raise additional equity capital and the administrator may

grant the approval, subject to subsection (2) and to any conditions that the

administrator may impose, if the administrator is satisfied that the capital

will consist of equity shares that

(

a) are without par value,

(

b) do not carry rights and restrictions attached to the shares that

(

i) create a debt between the holder or beneficial owner of the shares

and any other person,

(ii) entitle the holder or beneficial owner of the shares to reduce

the impact of any loss the holder or beneficial owner sustains in holding

or disposing of the share,

(iii) provide the holder or beneficial owner of the share with the right

to require the eligible business corporation to repurchase the shares

before the expiry of 5 years after the date of issue, or

(iv) are prohibited by regulation,

(

c) do not carry 50% or more of the votes for the election of directors

of the eligible business corporation, and

(

d) are fully paid for in cash.

(2) It is a condition of an approval under subsection (1) to raise additional

equity capital that the eligible business corporation must not issue any of

the shares comprised in the additional equity capital to a person that, at

any time during the 2 years immediately preceding the date of issue, has disposed

of a share of any class of shares issued by the eligible business corporation.

Aggregate investment by eligible investor

28.4

(1) An eligible investor must not make or hold an investment

in an eligible business corporation if, as a result of that investment, the

aggregate of all amounts received by that eligible business corporation from

all eligible investors, directly or indirectly, would be greater than $5 million.

(2) For the purposes of subsection (1), if in the opinion of the administrator

one of the reasons for the separate existence of 2 or more eligible business

corporations is to increase the amount received from one or more eligible

investors, the eligible business corporations are deemed to be one eligible

business corporation.

Control of eligible business – prohibitions

28.5

(1) Subject to subsection (2), an eligible investor must not

make or hold an investment in an eligible business corporation if the eligible

investor, either alone or in conjunction with one or more of the eligible

investor's

(

a) associates or affiliates,

(

b) shareholders or their associates or affiliates,

(

c) directors or their associates, or

(

d) officers or their associates,

will own, directly or indirectly, shares carrying 50% or more of the votes

for the election of directors of the eligible business corporation or will,

in any manner, control the eligible business corporation.

(2) If the administrator considers that an eligible business corporation

in which an eligible investor has invested is in financial difficulty, the

administrator may permit that eligible investor to temporarily control the

that the administrator may determine.

Revocation and suspension of registration

28.6

(1) The administrator may suspend or revoke the registration

under this Part of an eligible business corporation if, in the opinion of

the administrator, the eligible business corporation

(

a) has contravened this Act or the regulations,

(

b) has not complied with a condition referred to in subsection (2) (a),

(

c) has misrepresented any information to the administrator or to staff

of the administrator, either knowingly or through circumstances amounting

to negligence,

(

d) has applied any proceeds of additional equity capital for a use prohibited

under

section 28.93, or

(

e) at any time during the 5 years immediately following the date on which

the eligible business corporation raises any additional equity capital,

the eligible business corporation does not conform to

section 10 (1) (

b) or (c).

(2) If the administrator suspends a registration under subsection (1), the

administrator may

(

a) attach conditions to be complied with by the suspended eligible business

corporation during the period of suspension, and

(

b) reinstate the registration with or without conditions.

(3) An eligible business corporation or an associate, affiliate, director,

officer or shareholder of an eligible business corporation must not provide,

directly or indirectly, as part of any transaction or series of transactions,

a loan, loan guarantee or any other financial assistance to any person for

the purpose of, or in connection with, a purchase of shares that are part

of any additional equity capital.

(4) An eligible business corporation must not redeem a share for which a

tax credit certificate has been issued under this Part, unless the redemption

occurs

(

a) more than 5 years after the date of issue of the share, or

(

b) in prescribed circumstances.

(5) An eligible business corporation must not register a transfer of a share

for which a tax credit has been issued under this Act if the transferor of

the share is

(

a) the original purchaser of the share, or

(

b) a registered retirement savings plan or registered retirement income

fund of which plan or fund the original purchaser of the share or his or

her spouse is a beneficiary or annuitant,

unless the transfer occurs

(

c) more than 5 years after the date of issue of the share, or

(

d) in prescribed circumstances.

Consequences of revocation

28.7

(1) If, under

section 28.6, the administrator revokes the registration

of an eligible business corporation after it has raised additional equity

capital, the small business whose registration as an eligible business corporation

has been revoked must pay to the Minister of Finance, subject to subsection

(2), an amount equal to the aggregate of all the amounts of tax credits issued

for the additional equity capital.

(2) For the purpose of this section, the Lieutenant Governor in Council

may prescribe an amount less than the amount described in subsection (1),

in which case the small business must pay to the Minister of Finance that

lesser amount.

(3) If, under

section 28.6, the administrator revokes the registration of

an eligible business corporation before the eligible business corporation

has raised additional equity capital, the administrator must not issue the

tax credit certificate referred to in

section 28.95.

Liability of officers and directors

28.8

(1) In this section, "third party" means

(

a) a director or officer of a small business that is or was registered

as an eligible business corporation,

(

b) a member of a common interest group that controls a small business

described in paragraph (a), or

(

c) a major shareholder of a small business described in paragraph (a).

(2) If a third party authorizes or acquiesces in a

(

a) transaction or event, or

(

b) series of transactions or events

that the third party knew or reasonably ought to have known at the time of

the authorization or acquiescence would render the eligible business corporation

liable to the Minister of Finance to make the payment required under

section

28.7, then the third party is jointly and severally liable for the amount

of the payment.

Voluntary cancellation of registration

28.9

(1) On the written request of an eligible business corporation,

the administrator may cancel the eligible business corporation's registration

under this

Part if

(

a) it pays to the Minister of Finance the aggregate of all the amounts

of tax credits issued in the immediately preceding 5 years for shares issued

by it as part of an issue of additional equity capital, and

(

b) it meets prescribed requirements.

(2) If the administrator considers that an eligible business corporation

that makes the request under subsection (1)

(

a) has conducted its business and affairs in a manner consistent with

this Act, and

(

b) for at least 3 years has complied with this

Part in relation to all

the shares for which a tax credit has been issued,

the administrator may reduce the amount that would otherwise be payable under

subsection (1) by an amount calculated as follows:

(

c) firstly, multiply that amount otherwise payable by the number of days

during which the shares referred to in paragraph (

b) remained outstanding;

(

d) secondly, divide the product obtained under paragraph (

c) by 1825

to determine the amount of the reduction.

Repayment of tax credits on early redemption,

acquisition or cancellation of shares

28.91

(1) Except in prescribed circumstances, if an eligible business

corporation, within 5 years after it issues a share for which a tax credit

certificate was issued under this Part, redeems, acquires or cancels the share,

then the person who held the share immediately before the redemption, acquisition

or cancellation must pay to the Minister of Finance an amount equal to the

tax credit allowed for the share.

(2) The Lieutenant Governor in Council may make regulations requiring persons

who owe money payable to the Minister of Finance under subsection (1) to pay

interest on the money at a prescribed rate and calculated from a prescribed

date.

(3) If the administrator considers that an eligible business corporation

(

a) has conducted its business and affairs in a manner consistent with

this Act, and

(

b) for at least 3 years, has not redeemed, acquired or cancelled a share

issued by it for which a tax credit certificate was issued under this Part,

the administrator may reduce the amount that would otherwise be payable under

this

section by an amount calculated as follows:

(

c) firstly, multiply that amount otherwise payable by the number of days

during which the share referred to in paragraph (

b) remained outstanding;

(

d) secondly, divide the product obtained under paragraph (

c) by 1825

to determine the amount of the reduction.

Repayment of tax credits – other share dispositions

28.92

(1) If a person, within 5 years after the date of purchasing

a share for which a tax credit has been issued under this Part and in a transaction

other than a redemption, acquisition or cancellation referred to in

section

28.91, disposes of a share for which a tax credit was issued under this Part,

then the person must pay to the Minister of Finance an amount equal to the

tax credit allowed for the share.

(2) The Lieutenant Governor in Council may make regulations requiring persons

who owe money payable to the Minister of Finance under subsection (1) to pay

interest on the money at a prescribed rate and calculated from a prescribed

date.

Prohibited use of funds

28.93 An eligible business corporation must not use, directly or

indirectly, any funds raised by an issue of shares for which tax credits have

been or are entitled to be claimed under

section 28.95 for any of the following

purposes:

(

a) lending;

(

b) investment outside British Columbia;

(

c) investment in land, unless the investment is incidental or ancillary

to the business activities, referred to in

section 10 (1) (c), of the eligible

business corporation;

(

d) acquiring securities other than equity shares from an affiliate of

a eligible business corporation that complies with the criteria set out

section 10 (1) (

a) to (c);

(

e) purchasing goods or services from

(

i) an eligible investor whose investment is in the eligible business

corporation, or

(ii) an associate of an eligible investor whose investment is in the

eligible business corporation

other than goods or services that are sold at fair market value to the

eligible investor in the ordinary course of the seller's business as a seller

of such goods or services on the open market;

(

f) payment of all or part of a debt obligation, unless

(

i) the administrator considers that the payment is necessary for the

financial viability of the eligible business corporation, or

(ii) the debt obligation was incurred with the prior approval of the

administrator in anticipation of an investment in the eligible business

corporation by an eligible investor;

(

g) as part of a transaction or series of transactions directly or indirectly

involving any of the following:

(

i) the purchase or redemption of previously issued shares of the eligible

business corporation or one of its affiliates;

(ii) the retirement of any part of a liability to a shareholder of the

eligible business corporation or one of its affiliates or to a shareholder's

associate or affiliate;

(iii) the payment of dividends;

(iv) except in prescribed circumstances, the funding of all or part

of the purchase by the eligible business corporation of all or a substantial

portion of the assets of a proprietorship, partnership, joint venture,

trust or corporation;

(

v) the funding of all or part of the purchase by the eligible business

corporation of any of the assets of a proprietorship, partnership, joint

venture, trust or corporation at a price that is greater than the fair

market value of the assets purchased;

(vi) other prescribed events;

(

h) other prescribed purposes.

Application for tax credits

28.94 An eligible business corporation that in any calendar year

has raised additional equity capital must apply to the administrator, in a

form approved by the administrator, for tax credit certificates entitling

each eligible investor, in relation to additional equity capital, to a tax

credit under

section 21 of the Income Tax Act equal to 30% of the amount

received by the eligible business corporation in that calendar year or, in

the case of a shareholder who is an individual and who makes an election referred

to in

section 21 (16) of the Income Tax Act , within 60 days

after the end of that calendar year, for the shares that were

(

a) part of the additional equity capital, and

(

b) issued to the eligible investors.

Tax credit certificates

28.95

(1) The administrator, following the approval of the minister

responsible for the administration of the Income Tax Act and in accordance

with

section 21 of that Act, must issue a tax credit certificate in the amount

calculated in accordance with

section 28.94 to each of the eligible investors

referred to in

section 28.94 if the administrator is satisfied as to all of

the following matters:

(

a) the eligible business corporation is conducting its business or affairs

in a manner consistent with this Act;

(

b) the eligible business and its eligible investors are complying with

this Act and the regulations;

(

c) no tax credit under this

section has been previously allowed or paid

for the shares;

(

d) the equity capital, that is the subject of the application for the

tax credit, consists of equity capital of the eligible business corporation

that has been approved in accordance with

section 28.3;

(

e) the shares, for which the eligible business corporation applies to

the administrator for tax credits, are not a type of security that entitles

its holders to claim a tax credit against tax payable under the Income

Tax Act (Canada) for the purchase of the security;

(

f) the eligible investor shareholders acquire the shares directly from

the eligible business corporation or its agent acting in that behalf;

(

g) the eligible investor shareholder, if an individual, is resident in

British Columbia at the date of subscribing for the shares;

(

h) any other prescribed conditions are met.

(2) A tax credit certificate issued under this

section may be revoked by

the administrator, if the administrator considers that, at the time the tax

credit certificate was issued or at a subsequent time, the eligible business

corporation was in contravention of this Act or the regulations.

(3) If the administrator refuses to issue a tax credit certificate under

this section, the administrator must promptly give notice of that refusal,

together with reasons for the refusal, to the eligible business corporation.

(4) If the administrator revokes a tax credit certificate

issued under this section, the administrator must promptly give notice of that

revocation, together with reasons for the revocation, to the eligible business

corporation and to the minister responsible for the administration of the Income

Tax Act .

Payment to government where no entitlement

28.96 If a person has received, directly or indirectly, the benefit

of a tax credit to which the person is not entitled, the person must repay

the amount of the benefit forthwith to the Minister of Finance.

Annual reporting

28.97

(1) Within 6 months after its fiscal year end, an eligible

business corporation must prepare an annual report in a form approved by the

administration and file the report with the administrator accompanied by each

of the following:

(

a) a copy of the register of allotments, members and transfers of the

eligible business corporation;

(

b) a copy of the most recent financial statements of the eligible business

corporation that have been reviewed by a chartered accountant, certified

general accountant or other person who is a licensed or registered member

of an accounting association;

(

c) a copy of the most recent annual report filed with the registrar of

companies.

(2) An eligible business corporation must comply with subsection (1) in

each of the 5 consecutive fiscal years following the date of its most recent

issue of shares as part of the raising of additional equity capital.

24 The following heading is added immediately before

section 29:

Part 3 – General .

25 The following

section is added:

Annual maximum venture capital incentive

29.1

(1) The Lieutenant Governor in Council may prescribe, for any

year, an amount to be known as the annual maximum venture capital tax credit.

(2) If in any year the minister considers that, in respect of the issue

(

a) equity capital approved under

section 3 (4),

(

b) equity capital approved under

section 9, and

(

c) additional equity capital approved to be raised under

section 28.3

in that year, the total of the amounts that will be

(

d) payable under

section 21 (3) or (5) of the Income Tax Act ,

(

e) paid under

section 21 (3) or (5) of the Income Tax Act ,

(

f) deductible under

section 21 of the Income Tax Act , a nd

(

g) deducted under

section 21 of the Income Tax Act

will be greater than the annual maximum venture capital tax credit prescribed

under subsection (1) of this section, the administrator must not approve,

for the remainder of that year,

(

h) any issue of equity capital under

section 9 of this Act in respect

of shares that are proposed to be issued to persons as defined in

section

20 (1) of this Act, or

(

i) the raising of any additional equity capital under

section 28.3 of

this Act in respect of shares that are proposed to be issued to eligible

investors.

(3) If in any year the minister considers that, in respect of the issue

(

a) equity capital approved under

section 3 (4),

(

b) equity capital approved under

section 9, and

(

c) equity capital approved to be raised under

section 28.3 of this Act

in that year, the total of the amounts that will be

(

d) payable under

section 21 (3) or (5) of the Income Tax Act ,

(

e) paid under

section 21 (3) or (5) of the Income Tax Act ,

(

f) deductible under

section 21 of the Income Tax Act , and

(

g) deducted under

section 21 of the Income Tax Act ,

will be greater than the aggregate of the annual maximum venture capital

tax credit prescribed under subsection (1),

(

h) the minister may suspend further registrations of venture capital

corporations and eligible business corporations under this Act for that

year, and

(

i) the administrator must not approve, for the remainder of that year,

of any additional issue of additional equity capital under

section 9 of

this Act or of the raising of additional equity capital under

section 28.3

of this Act.

Section 30 is repealed and the following substituted:

Examination of records

(1) During normal business hours, the administrator or a person

designated by the administrator may make an examination of the affairs of

(

a) a venture capital corporation or eligible business corporation,

(

b) a corporation that was a venture capital corporation or eligible business

corporation, or

(

c) a small business, corporation or other entity, or an affiliate of

the small business, corporation or other entity, in which a venture capital

corporation has made an investment,

for the purpose of determining whether or not the venture capital corporation,

eligible business corporation or corporation that was a venture capital corporation

or eligible business corporation is complying with or has complied with this

Act and the regulations.

(2) For the purposes of determining compliance under this Act, the administrator

or person making the examination under this

section

(

a) is entitled to unrestricted access without charge to all records,

securities cash and savings institution accounts of

(

i) the venture capital corporation, eligible business corporation,

small business, corporation or other entity being examined, or

(ii) an affiliate of any of them, and

(

b) may make copies of any record or security to which he or she is entitled

to unrestricted access.

Consequential Amendments

Income Tax Act

Section 21 of the Income Tax Act, R.S.B.C. 1996, c. 215, is

amended

(

a) in subsection (1) by repealing the definition of "venture

capital tax credit" and substituting the following:

"venture capital tax credit" means the aggregate of the tax credit

amounts shown on all venture capital tax credit certificates issued

(

a) to a taxpayer that is a corporation, for share purchases made during

a taxation year, or

(

b) to a taxpayer who is an individual, for

(

i) share purchases made during a calendar year, and

(ii) if the taxpayer makes and files an election under subsection (16),

share purchases made within the first 60 days after the end of a calendar

year. ,

(

b) in subsection (1) by adding the following definition:

"venture capital tax credit certificate" means a tax credit certificate

issued under

section 20 (4) or 28.95 of the Small Business Venture Capital

Act by the administrator under that Act; , and

(

c) by adding the following subsections:

(16) An individual taxpayer may make, and file with the minister, an election,

in the form and containing the information required by the Commissioner of

Income Tax, to treat a share purchase made within the first 60 days after

the end of a calendar year as having been made in the immediately preceding

calendar year and not in the calendar year of purchase, in which case the

purchase is deemed to have been made in that immediately preceding calendar

year.

(17) A venture capital tax credit certificate that is revoked by the administrator

under the Small Business Venture Capital Act is deemed never to have

been issued.

Commencement

28 This Act comes into force by regulation of the Lieutenant Governor in Council.

Explanatory Notes

SECTION 1: [Small Business Venture Capital Act, amends

section 1 (1)]

adds

definitions of "annuitant" (for convenience) and of "eligible business

corporation" (consequential to the addition of

Part 2 of the Act, providing

for eligible business corporation investment tax credits);

amends the

definitions of "eligible investment" (consequential to the addition

Part 2 of the Act), "equity share" (to allow for venture capital corporation

investment in certain securities offered by small businesses) and of "small

business" (to increase the maximum employee count for a small business receiving

capital under the Act from 75 to 100 employees).

SECTION 2: [Small Business Venture Capital Act, adds

section 1 (6.1)]

equates the annuitant or beneficiary of a trust to the trust itself in relation

to shares purchased or disposed of.

SECTION 3: [Small Business Venture Capital Act, enacts heading to

Part

1] adds a Part title, and so forms "Part 1 – Venture Capital Corporation

Tax Credits" from sections 2 to 28 of the Act. This is consequential to the

addition by this Bill of

Part 2, dealing separately with eligible business corporation

investment tax credits.

SECTION 4: [Small Business Venture Capital Act, amends sections 2, 3,

21 and 25] is consequential to the amendment made by

section 3 of this

Bill.

SECTION 5: [Small Business Venture Capital Act, repeals and replaces

section 3 (1) (e)] changes one of the criteria for registration of a

company as a venture capital corporation to allow additionally for no par value

common shares special rights relating only to redemption of the shares.

SECTION 6: [Small Business Venture Capital Act, amends

section 6]

recasts

section 6 (3) of the Act to remove the specific limits on the equity

capital that may be raised by a venture capital corporation and to, instead,

enable the Lieutenant Governor in Council prescribe maximum amounts.

SECTION 7: [Small Business Venture Capital Act, repeals and replaces

section 8 (2) and (3)] transfers from the Act to the regulations the

requirements to have and keep a certain amount invested in eligible investments

for a set period.

SECTION 8: [Small Business Venture Capital Act, re-enacts

section 9]

recasts the provision relating to the approvals for raising additional equity

capital by venture capital corporations, for clarity, and to refer to "this

Part", as a consequence of the addition by this Bill of

Part 2.

SECTION 9: [Small Business Venture Capital Act, repeals and replaces

section 10 (1) and adds subsection (1.1)] recasts the

section

of the Act that sets out the criteria for investments by a venture capital corporation

in a small businesses. Under the recast section,

the employee count for the small business in which the investment is made

is increased from 75 to 100,

the activities in which the investee small business may be engaged are

to be prescribed instead of specified in

section 10 of the Act,

the investment may consist, additionally, of the acquisitions described

section 10 (1) (d) (iii) and (iv), and

the re-investment of certain funds paid by a venture capital corporation

for equity shares of an affiliate of a small business and for certain limited

partnership units, as described in

section 10 (1) (e) (

i) and (ii).

SECTION 10: [Small Business Venture Capital Act, repeals

section 11]

removes the requirement for a venture capital corporation to tender its equity

shares in a small business first to all of the shareholders of the small business

before it accepts an offer to purchase the shares.

SECTION 11: [Small Business Venture Capital Act, repeals and replaces

section 12 (1)] clarifies prohibited uses of the proceeds of venture

capital corporation investments in the small businesses that receive the proceeds.

The changes made are intended to ensure that the proceeds of investments in

small businesses by venture capital corporations are used for expansion activities

of the small businesses.

SECTION 12: [Small Business Venture Capital Act, repeals and replaces

section 14 (2) (

c) and (

d) and adds paragraph (e)] prohibits a small

business from providing financial assistance to a shareholder or another person

who proposes to make an investment in a venture capital corporation.

SECTION 13: [Small Business Venture Capital Act, amends

section 15 (1)]

increases the maximum aggregate amount of investments that a single

small business may receive from venture capital corporations to $5 million from

$3 million.

SECTION 14: [Small Business Venture Capital Act, re-enacts

section 17]

recasts the

section to clarify the subsections that require investments that

become non-conforming to be disposed of. Further, a provision is added to enable

the administrator to grant the described relief respecting the disposal of the

non-conforming investments in the circumstances that are set out.

SECTION 15: [Small Business Venture Capital Act, amends

section 19]

updates a ministerial reference, recasts

section 19 of the Act to remove a reference

to "spirit and intent" and to make subsection (8) consistent with

section 20

(4) of the Act and, as a consequence to the amendments to

section 20 of the

Act made by this Bill, removes a reference to grants under that section.

SECTION 16: [Small Business Venture Capital Act, amends

section 20]

grants a venture capital corporation individual shareholder the option

of claiming a tax credit in either the current or prior calendar year for

an investment made in the first 60 days following a calendar year,

recasts subsection (4) to update a ministerial reference, to remove a reference

to "spirit and intent" and to make the subsection and

section 19 (8) consistent

with each other,

repeals subsections (5) and (6) so that grants may no longer be made to

applicant venture capital corporations and removes references to grants, and

allows the administrator to revoke a tax credit issued in situations of

program abuse, provided notice and reason for revocation is given to the venture

capital corporation and the minister responsible for the administration of

the Income Tax Act .

SECTION 17: [Small Business Venture Capital Act, repeals

section 21]

repeals the provision respecting the annual maximum venture capital incentive

as a consequence of moving its subject matter into

section 29.1 of the Act,

a provision common to Parts 1 and 2 of the Act as amended.

SECTION 18: [Small Business Venture Capital Act, amends

section 22]

updates ministerial references,

allows for pro-rated tax credit recovery if a venture capital corporation

divests an eligible investment due to circumstances outside of its control

and the investment has been held for at least 3 years,

grants relief to a venture capital corporation from having to repay tax

credits to the government under certain conditions, and

repeals subsection (6) as a consequence of the amendments to

section 20

of the Act ending the availability of grants.

SECTION 19: [Small Business Venture Capital Act, amends

section 25 (j)]

updates a ministerial reference.

SECTION 20: [Small Business Venture Capital Act, amends

section 26]

extends the liability to repay venture capital corporation tax credits to

persons within the definition of "third party" if they knowingly contribute

to contraventions under the Act that lead to the repayment of venture capital

corporation tax credits and makes a change consequential to the elimination

of grants.

SECTION 21: [Small Business Venture Capital Act, repeals

section 27]

repeals the

section respecting forgiveness of liability to repay tax credits

or grants at any time after expiry of 5 years. This facilitates the orderly

redemption of shareholder investments upon maturity.

SECTION 22: [Small Business Venture Capital Act, amends

section 28]

allows the administrator to suspend or revoke the registration of a venture

capital corporation if it has no remaining eligible investments and recasts

subsection (3) to remove a reference to "spirit and intent".

SECTION 23: [Small Business Venture Capital Act, enacts

Part 2]

enacts

Part 2 in order to introduce a direct investment model under the

Act;

allows the Province to provide tax credits for investments made directly

in qualifying small businesses registered as "`eligible business corporations'";

under this new

Part it will no longer be necessary for investors to establish

and maintain a holding company to flow investment capital to small businesses.

This will reduce costs and paper work for investors and in turn provide more

leverage for the government. Tax credits will be paid on the full 100% of

investment capital received by small businesses.

SECTION 24: [Small Business Venture Capital Act, enacts

Part 3 heading]

adds a Part title, and so forms "Part 3 – General" from sections 30 to 37 of

the Act. This is consequential to the addition by this Bill of

Part 2.

SECTION 25: [Small Business Venture Capital Act, enacts

section 29.1]

provides for an annual maximum venture capital incentive in respect of the

incentives under

Part 1 of the Act for venture capital corporations and

Part

2 of the Act for eligible business corporations. This maximum incentive is now

made applicable for both venture capital corporations dealt with in

Part 1 and

for eligible business corpo rations dealt with in

Part 2.

SECTION 26: [Small Business Venture Capital Act, re-enacts

section 30] allows for the examination of eligible business corporation's financial

records including the records of an associate or small business that was previously

registered as an eligible business corporation.

Income Tax Act

SECTION 27: [Income Tax Act, amends

section 21]

adds

definitions of "venture capital tax credit" and "venture capital tax

credit certificate", consequentially to the amendments by this Bill to

section

20 of the Small Business Venture Capital Act and to

section 28.95 of

that Act added by this Bill;

adds subsection (16) to provide individual shareholders with the option

of claiming the venture capital tax credit for the prior calendar year for

an investment made within the first 60 days of each calendar year;

adds subsection (17) to provide the administrator of the Small Business

Venture Capital Act , in rare situations of program abuse, the ability

to revoke tax credits once issued and deeming them not to have been issued

so officials with the Ministry of Provincial Revenue may cancel or deny the

tax credit deduction.

Copyright (c) 2003: Queen's Printer, Victoria, British Columbia, Canada