Credits, Benefits & Incentives

The Ontario government announced that it plans to eliminate the 15 per cent tax credit for investors in Labour Sponsored Investment Funds by the end of the 2010 taxation year. For more information, please read:

• March 23, 2006 Information Bulletin
• September 30, 2005 News Release
• August 29, 2005 News Release and Backgrounder.

In the 2007 Ontario Economic Outlook and Fiscal Review, the government proposes to extend the phase-out of the LSIF tax credit by one year by:

• maintaining the 15 per cent tax credit rate until the end of the 2009 tax year
• lowering the rate to 10 per cent for the 2010 tax year
• lowering the rate to 5 per cent for the 2011 tax year
• eliminating the credit for tax years after 2011.

The government also proposes to increase the maximum investment that qualifies for the provincial tax credit from $5,000 to $7,500. This proposed change would be effective January 1, 2007.

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Labour Sponsored Investment Funds (LSIFs) are venture capital corporations, designed to provide alternative sources of capital to small and medium-sized Ontario businesses, to help stimulate the provincial economy and to create jobs. LSIFs offer unique investment opportunities and tax credits to individual investors who purchase Class A shares of registered LSIFs.

The program is administered by the Business Investment Plans Section of the Tax Compliance Branch of the Ministry of Revenue.

An LSIF is a Canadian corporation that is registered under Part III of the Community Small Business Investment Funds Act. An application for registration must be submitted by an eligible "employee organization". Once an LSIF is registered and its Prospectus is approved by the Ontario Securities Commission, it may issue Class A shares to eligible investors. The Act contains specific requirements with respect to:

• registration
• employee organization
• articles of the corporation
• assets that can be held
• Research Oriented Investment Funds
• tax credits
• required investment levels
• types of investments
• required returns/forms
• return of capital
• transfer of shares between shareholders
• penalties/taxes/clawbacks.

The Benefit

The benefits of the LSIF program include:

• a tax credit for investors
• strengthening of the Ontario small business sector with new sources of capital
• increased economic activity, promoting growth and creating jobs
• potential returns on LSIF investments.

Additional tax credits are provided to shareholders who purchase Class A shares of an LSIF that qualifies as a Research Oriented Investment Fund at the time the Class A shares are purchased. LSIF shares are RRSP eligible.

Eligibility

Specific eligibility criteria must be met by the:

• corporations seeking registration as an LSIF,
• the corporation's employee organizations and shareholders,
• investee businesses,
• investments the corporation makes in investee businesses.