Direct Equity Tax Credit

💡What Is This Program?

🎁What Benefits Are Offered?

A provincial income tax credit for individuals and arm’s length corporations who invest as shareholders in eligible new or expanding small businesses in Newfoundland and Labrador. The credit rate is 35% for qualifying activities outside the North East Avalon, and 20% for activities within the North East Avalon, with proration for activities in both areas. It aims to encourage private investment, job creation, and economic diversification.

📋What Are the Application Steps & Timeline?

📝Steps to ApplySource

• Complete the application form
• Attach required documentation
• Submit the application to the Department of Finance

🌐Application PortalSource

https://www.gov.nl.ca/fin/tax-programs-incentives/business/directequitytaxcredit/

📤Submission MethodSource

mail

🔄Intake TypeSource

rolling

📄What Documents Are Required?

✅Required DocumentsSource

• names and addresses of all directors of the corporation
• copy of the certificate of incorporation
• financial statements for the most recent year end of the corporation and all associated corporations together with a review engagement report or auditor's report
• income tax returns for the preceding taxation year for the corporation and all associated corporations
• the amount to be raised by the specified issue
• detailed description of the proposed business activities
• detailed description of the proposed use of funds raised
• the proposed locations for the utilization of funds

📐Format Requirements

PDF only, max 10MB

📥Templates AvailableSource

• Direct Equity Tax Credit Program Application

💰What Expenses Are Eligible?

🧾Eligible ExpensesSource

• investment in new or expanding small businesses
• qualifying activities

🚫Ineligible ExpensesSource

• lending
• paying dividends
• the purchase or redemption of shares
• the payment of debt, debt reduction or refinancing an existing debt
• the purchase of all or part of a business as a going concern
• the purchase of all or substantially all of the assets of a previously existing proprietorship, partnership, joint venture, trust or company
• the purchase of assets or services by the eligible business for a price greater than fair market value

📏Expense CapsSource

maximum annual investment in eligible shares is $250,000 in the North East Avalon, where the tax credit rate is 20%, and almost $143,000 outside the North East Avalon, where the tax credit rate is 35%

💳Payment ModelSource

reimbursement

⏪Retroactive Expenses EligibleSource

No

🤝Is Matching Funding Required?

🔀Matching RequiredSource

Yes

📊Matching RatioSource

25% minimum

🏦Eligible Matching SourcesSource

• cash

📚Stacking Rules

Not specified

🛡️Proof of Matching RequiredSource

An official tax credit receipt must be submitted with the individual’s T1 Income tax return or the corporation’s T2 income tax return.

📊What Are the Reporting Requirements?

🗓️Reporting FrequencySource

annual

📑Reporting RequirementsSource

• financial statements for the most recent year end
• income tax returns for the preceding taxation year
• detailed status report of shareholdings for five years after specified share issuances

🔍Audit RequirementsSource

Eligible businesses shall supply information confirming the use or disposition of capital raised under the Direct Equity Tax Credit program.

📢Branding RequirementsSource

An official tax credit receipt must be submitted with the individual’s T1 Income tax return or the corporation’s T2 income tax return.

🗄️Record Retention PeriodSource

5 years