For Individual Investors
Published: January 2009
Content last reviewed: January 2012
ISBN:
978-1-4249-8950-8 (Print), 978-1-4249-8952-2 (PDF), 978-1-4249-8951-5 (HTML)
Introduction
For years ending prior to January 1, 2012, Ontario residents may qualify for an Ontario tax credit of up to 15 per cent of the cost of their investments in Labour Sponsored Investment Funds (LSIFs).
LSIFs are venture capital corporations, designed to provide alternative sources of capital to small and medium-sized Ontario businesses. In 2005, the Government of Ontario announced the phase-out of the 15 per cent tax credit for investors in LSIFs (see details below).
How the program works
An LSIF may issue class A shares to eligible investors. An "eligible" investor is defined as an individual and includes a Registered Retirement Savings Plan (RRSP) trust of which the individual or spouse or common-law partner of the individual is the annuitant.
Investment tax credits
Ontario tax credits may be claimed by eligible investors for investments:
- for taxation years ending prior to January 1, 2007, up to $5000
- for taxation years ending after December 31, 2006, up to $7500.
Tax credits issued for investments made in the first 60 days of a year, can be used to offset Ontario taxes for the year of investment or for the immediately preceding year. Tax credits issued for investments made during the rest of the year, may only be applied to Ontario taxes for the year of investment.
Tax credits are claimed on Form ON 428 Ontario Tax. Unused LSIF tax credits cannot be carried forward to other taxation years.
Amount of tax credits
- Before 2007, an eligible investor is entitled to a maximum annual Ontario tax credit of $750 ($5000 maximum investment × 15 per cent). A federal tax credit is also available.
- After 2006, an eligible investor is entitled to a maximum tax credit of $1,125 ($7500 maximum investment x 15 per cent), subject to the phase-out schedule noted below. A federal tax credit is also available.
- For investors in LSIFs that qualify as Research Oriented Investment Funds (ROIFs), an additional 5 per cent Ontario tax credit is available. There is no federal matching of this extra credit.
Tax credit phase-out
The Government of Ontario has established a phase-out of the LSIF tax credit. This phase-out is summarized in the following table:
| Taxation Year | Retirement Savings Plan Sales Season | Labour Sponsored Investment Fund Tax Credit | Research Oriented Investment Fund Tax Credit |
|---|---|---|---|
| 2006 | 2007 | 15% | 5% |
| 2007 | 2008 | 15% | 5% |
| 2008 | 2009 | 15% | 5% |
| 2009 | 2010 | 15% | 5% |
| 2010 | 2011 | 10% | 5% |
| 2011 | 2012 | 5% | 5% |
| 2012 | 2013 | 0 | 0 |
The LSIF tax credit (including the ROIF portion) is eliminated for tax years after 2011.
Registered Retirement Savings Plans (RRSPs)
LSIF investments are RRSP eligible.
Investment restrictions
If you redeem LSIF shares within eight years of the purchase date, you will be required to repay the tax credits. This will not apply under the following circumstances:
- if the shares are transferred as a result of your death
- if you become disabled and permanently unfit for work or terminally ill
- if you request the LSIF to redeem the shares within 60 days of the date of the original purchase and you return the original tax credit certificate.
Investor caution
These investments, by their nature, involve risk. The Government of Ontario does not guarantee the success of any investment in an LSIF. Prior to investing you should obtain and read a copy of the LSIF's prospectus.
Investment requirements
For 2005 and subsequent years, LSIFs are required to invest 60 per cent of capital raised from the sale of Class A shares, into "eligible" businesses. "Eligible" businesses are defined as:
- taxable Canadian corporations or partnerships that pay 50 per cent or more of their wages and salaries to workers in Ontario
- companies whose gross assets do not exceed $50 million
- companies whose total payroll together with all related corporations, does not exceed 500 employees.
Request for written interpretations
Interpretations concerning LSIFs can only be made by reviewing all the facts of the situation. Where all relevant facts are provided, requests for written interpretations may be sent to:
Ministry of Finance
Advisory Services and Program Policy Branch
Income Tax Related Programs Section
33 King St W
Oshawa ON L1H 8H5
Further information
To obtain the most current version of this publication, or additional information, visit our website at ontario.ca/finance or contact the Ministry of Finance at:
- 1 866 ONT-TAXS (1 866 668-8297)
- 1 800 263-7776 teletypewriter (TTY)
