Labour Sponsored Venture Capital Corporations (LSVCC) Tax Credit
A 15% tax credit is provided to individuals for the acquisition of shares of federally registered or prescribed provincially registered LSVCCs on investments of up to $5,000.
The budget proposes to phase out the LSVCC tax credit starting in 2015. The LSVCC tax credit will be eliminated for taxation years after 2016. The budget also proposes to end new federal LSVCC registrations as well as the prescription of new provincially registered LSVCCs for purposes of the federal LSVCC tax credit.
How will the LSVCC tax credit be phased out?
The percentage used in the calculation of the LSVCC tax credit will be reduced as follows:
|Taxation Year||2015||2016||After 2016|
|LSVCC tax credit rate||10%||5%||0%|
If I acquire shares of an LSVCC in the first 60 days of 2015, may I claim the 15% tax credit on my tax return for 2014?
Yes, an individual who acquires shares of an LSVCC in the first 60 days of a taxation year may claim the tax credit for the year of the acquisition (2015) or the prior year (2014). If the tax credit is claimed on the 2014 personal income tax and benefit return, the 15% rate will apply.
Can I still purchase shares of an LSVCC after March 21, 2013 and be eligible for the tax credit?
Yes. The acquisition of the shares from an LSVCC will still qualify for the tax credit subject to the LSVCC tax credit rate for the year in which the credit is claimed, if before March 21, 2013:
- The LSVCC was registered federally or registered provincially and prescribed for the purposes of the federal credit;
- The application for registration as a federal LSVCC was received; or
- The application to be registered provincially under prescribed provincial legislationwas submitted.
How will these changes affect the penalty imposed when shares of an LSVCC have been disposed for the purpose of investing the proceeds in a Home Buyers' Plan or a Lifelong Learning Plan and I failed to re-purchase LSVCC shares?
When an individual has disposed of shares of an LSVCC for the purpose of investing the proceeds in a Home Buyers' Plan or a Lifelong Learning Plan, the individual has to re-purchase LSVCC shares within a certain time period. If the individual fails to acquire new shares of an LSVCC within this time period, a penalty is applied for federal income tax purposes.
Under the phase-out rules proposed by the budget, the penalty will be calculated using the rate applicable for the tax credit when the shares were acquired. If the rate was reduced at that time, then the reduced rate will be used to calculate the penalty.
Will the Government undertake public consultations in regard to these changes?
The budget announces a consultation process in respect of the potential changes to the tax rules governing LSVCCs, including the rules related to investment requirements, wind-ups and redemptions. The public can submit comments by May 31, 2013 to the Department of Finance.
Where can I get more information about the changes to the LSVCC tax credit?
The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.
In the meantime, please consult the Department of Finance Canada's Budget 2013 documents for details.
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