By James Langton

(October 18 – 14:55 ET) – Ontario finance minister Ernie Eves says the Ontario government intends to increase tax credits for labour-sponsored investment funds to encourage investment in early-stage businesses.

The Ontario government will propose amendments to the Community Small Business Investment Funds Act to allow an LSIF to offer a 20% tax credit, up from 15%, where the fund is able to demonstrate that a significant portion of its capital is invested in research and development-oriented companies. Any LSIF that is able to meet this standard would be referred to as a research-oriented investment fund.

Legislation to implement this initiative will be proposed this fall, with a proposed effective date for the new enhanced tax credit of 2001. Shareholders who purchase a ROIF share in the first 60 days of 2001 will be able to claim the new incentive.

Qualification of a LSIF as a ROIF will be determined on a yearly basis. A LSIF would qualify if, during the previous calendar year, it has:

  • met the investment requirements and restrictions imposed by the CSBIF Act;
  • conducted its business and affairs in accordance with the CSBIF Act; and
  • held investments in that portion of its investment portfolio available for investment, at least 50% of the aggregate cost of which are held in specified research business investments (SRBIs).

SRBIs include investments where the investment recipient incurred at least 50% of its total expenses as scientific research and experimental development expenses at a permanent establishment in Canada.

Another form of SRBI would be businesses formed to commercialize intellectual property developed by a university, college, research institute or hospital, where at least 10% of the voting equity capital of the eligible business is held by a research group, or the R&D expenses equal at least 50% of the total amount invested in the business by the labour sponsored investment fund corporation.

Failure to meet the terms of the new credit would require that the LSIF pay a 10% penalty of the amount of equity capital received by the LSIF during that year. This would be in addition to any penalties for failing to meet the general pacing requirements of the CSBIF Act.