Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1) Will the federal labour sponsored funds tax credit be available to a labour sponsored venture capital corporation ("LSVCC"), that is provincially, but not federally registered in the province of Ontario during the years 2009-2011, when the provincial credit is being phased out?
2) If the federal credit is available for the period referred in 1) above, to the provincially registered corporation, will the amount of the federal credit be prorated for those years to match the provincial credit?
Position: 1) Yes
2) No
Reasons: 1) There is no consequential amendment issued in respect of the phasing out of the Ontario LSVCC tax credit.
2) Based on the definition of "approved shares" in paragraph (b) of subsection 127.4(1)
XXXXXXXXXX
2010-036546
V. Srikanth
June 15, 2010
Dear XXXXXXXXXX :
Re: Labour-Sponsored Venture Capital Corporation ("LSVCC")
This is in response to your e-mail dated April 28, 2010, wherein you asked for our views on the availability of the federal labour-sponsored funds tax credit. Specifically, you wanted our comments on whether the federal credit will be available to a LSVCC which is registered in the province of Ontario, during the years 2009 to 2011, when the provincial credit is being phased out by 5% a year and will be decreased from 15% in 2009 to zero in 2012. Further, in the event the federal credit is available, you would also like our views on whether the federal credit will be prorated to match the provincial credit.
Our Comments
Written confirmation of the tax implications inherent in actual proposed transactions is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled Advance Income Tax Rulings. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. If, however, the particular transactions are completed or partially completed, the enquiry should be addressed to the relevant Tax Services Office. Your request was not submitted as an advance income tax ruling request. However, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries which are not advance income tax rulings and are not binding on CRA, and we are, accordingly, prepared to provide you with the following comments.
Section 127.4 of the Income Tax Act (the "Act") provides for the federal labour-sponsored funds tax credit. Technical Notes to subsection 127.4(2) of the Act issued by the Department of Finance include the following statement:
"Subsection 127.4(2) allows an individual (other than a trust) a tax credit for the acquisition of an "approved share", which is defined in subsection 127.4(1) as, generally, a share issued by a prescribed LSVCC. LSVCCs prescribed for this purpose under section 6701 of the Regulations include LSVCCs registered under Part X.3 of the Act, as well as specified provincially registered LSVCCs...
Paragraph (b) of the definition "approved share" excludes from the definition certain shares issued by a provincially registered LSVCC that is not a federally registered LSVCC. This exclusion applies only in the event that, at the time of the issue of the shares, no assistance is available in respect of the acquisition of such shares because of a suspension or termination of assistance to the LSVCC under the laws of every province in which the LSVCC is registered."
In the given instance, though there is a reduction in the percentage of the Ontario provincial credit available, the credit has not been suspended or terminated in the years 2009 to 2011. Therefore, in our view, the federal credit will be available for those years. However, starting from 2012, when the provincial credit will no longer be available on shares issued after that time, pursuant to paragraph (b) of the definition of approved shares in subsection 127.4 of the Act, no federal credit will be available.
It should be noted that an amendment has been proposed to paragraph (b) of the definition of 'approved shares' and the Department of Finance's Technical Notes state that:
"...an approved share does not include a share issued by a provincially registered LSVCC (that is not a federally registered LSVCC) if, at the time of the issue, no province under the laws of which the corporation is an LSVCC that is a prescribed LSVCC provides assistance in respect of the acquisition of the share....
Amended paragraph (b) of the definition will also apply where there has not been a suspension or termination of assistance with respect to the issuance of the LSVCC's shares generally, but assistance is not available with respect to the acquisition of a particular share."
The above-mentioned amendment, which applies to the acquisition of shares after 2003, was proposed in Bill C-10 which ceased to exist when Parliament was dissolved on September 7, 2008. The Bill has not yet been reintroduced.
As regards to the issue of proration of the federal credit where the provincial credit is being phased out, we are not aware of any consequential amendment released by the Department of Finance. Accordingly, in our view, the full federal credit will be available for the years under consideration where the provincial credit has been reduced but has not been suspended or terminated.
We trust our comments will be of assistance to you.
Yours truly,
R.A. Albert, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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