SMALL BUSINESS VENTURE CAPITAL TAX CREDIT PROGRAM ( SBVCTC )

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1 SMALL BUSINESS VENTURE CAPITAL TAX CREDIT PROGRAM ( SBVCTC ) 1

2 PURPOSE OF SBVCTC PROGRAM To assist small eligible corporations to raise new equity from primarily new investors. Equity raised under the SBVCTC program can generally be used for: Ø Growing the business; Ø Financing working capital; Ø Purchasing capital assets; Ø Expenditures on research and development; Ø Marketing. 2

Equity raised under the SBVCTC program can generally be used for: Ø Growing the

3 ELIGIBILITY FOR TAX CREDIT An eligible investor Receives a 45% tax credit against Manitoba taxes payable; Can be an individual or a corporation; Per calendar year may earn up to $202,500 in provincial tax credits which equates to making an investment amount of $450,000; Per calendar year claim on its Income Tax Return up to $67,500 in provincial tax credits (3 years to claim maximum); Cannot own 35% or more of the voting stock. Unclaimed tax credits may be carried forward for ten years or carried back for three years. 3

$450,000; Per calendar year claim on its Income Tax Return up to $67,500 in provincial tax credits (3 years to claim maximum);

4 ELIGIBILITY FOR TAX CREDIT A common or preferred share must be paid for and issued to the investor; Within the past 24 months, the investor did not own 35% or more of the voting stock of the issuer or any affiliate of the issuer; Investor signs an acknowledgement that they understand the risk of the investment; The investor invests a minimum of $20,000. 4

stock of the issuer or any affiliate of the issuer; Investor signs an acknowledgement

5 WHO CAN APPLY Applicant must be a Canadian Controlled Private Corporation (CCPC); The corporation has either; Ø 50 or less full time equivalent employees, or Ø Less than $15.0 million in gross revenue. 25% of the corporation s employees are resident in Manitoba; Corporation has at least $25,000 in stated capital. 5

employees, or Ø Less than $15.0 million in gross revenue.

6 INELIGIBLE BUSINESS ACTIVITIES Professional services such as: doctors; lawyers and accountants; Providing management services; Leasing, developing or selling real property; Farming, fishing, hunting but NOT processing products from these activities; Holding, operating or granting franchises; Operating a restaurant, lounge, bar or amusement centre; Performing arts, amusement or gaming activities; Providing educational, health care, social or other similar services. 6

these activities; Holding, operating or granting franchises; Operating a restaurant, lounge, bar or amusement centre;

7 AMOUNT OF EQUITY THAT CAN BE RAISED An eligible small business corporation: Ø must raise at least $100,000 of new equity; and Ø has a maximum lifetime limit of $10.0 million of equity issuance. A corporation may apply as often as it wants as long as it has not reached the $10.0 million limit. 7

maximum lifetime limit of $10.0 million of equity issuance.

8 CORPORATION CANNOT USE EQUITY FOR Investment outside of Manitoba Ø The purchase of debt and equity securities of a subsidiary, parent or sister entity that does not have a permanent establishment in Manitoba and 25% of its FTEs in Manitoba. To lend to others; To pay a dividend or return capital to a shareholder; To pay an amount owing to: a shareholder; an affiliate; or a person related to a shareholder or affiliate; To purchase, develop or maintain land or equipment for sports; To support an ineligible activity; To support an activity that is contrary to public policy. 8

To lend to others; To pay a dividend or return capital to a shareholder; To pay an amount owing to: a shareholder; an affiliate; or a person

9 HOLD PERIOD Three years During hold period the issuer: Ø Must expend the share proceeds on the approved use; Ø Cannot redeem the shares; Ø Cannot allow the investor to require the company to redeem the share(s); and Ø Transfers of shares are only permitted on the death of a shareholder or if the issuer sells 100% of the shares to another party. If hold period is breached, tax credit is clawed back from issuer. 9

share(s); and Ø Transfers of shares are only permitted on the death of a shareholder or if the issuer

10 COMPLIANCE The Independent Administrator is the Compliance Officer. Once shares have been issued the issuer is required to file an Annual Return of Information for three years. Content of Annual Return of Information: Ø Details of shares issued; Ø Details of share redemptions; Ø Details of share transfer; Ø Details of use of proceeds. 10

11 APPLY Application and Guidelines are found at: In addition to completing the application the corporation must provide: Ø Shareholder list; Ø Articles and amended articles of incorporation; income tax return; Ø Annual financial statement; Ø Recent budget; Ø Executive summary of a business plan; Ø Recent income tax return and notice of assessment; and Ø Shareholders Agreement. Applicants should seek legal and tax advice. 11

amended articles of incorporation; income tax return; Ø Annual financial statement; Ø Recent budget; Ø Executive

12 Program established in 2008 HISTORY As of September 30, 2014: v 29 companies have been approved to issue shares that are eligible for the tax credit (several companies have issued multiple times); v Over $26 million in equity issued; v More than 250 investors. Program enhancements in June 2014 Provincial Budget: v Tax credit increased from 30% to 45%; v Investors can hold up to 35% of shares, up from 10%, to remain eligible to receive tax credit; v Issuer lifetime limit increased from $5.0 to $10.0 million. 12

13 Pre- Seed.13 Seed Start-up Growth Maturity Funding Source CSB 1 $ 0 50K CSB 2 $ K Sidecar $ K Angel, VC, and debt Revenue $ 0 $0 1,000,000 $ 1,000,000 5,000,000 $ 5,000,000 + Business Style Lifestyle & Scalable Scalable Scalable Market Validation Stage Ready Aim Fire 13

50 250K Sidecar $ 200 500K Angel, VC, and debt Revenue $ 0 $0

14 CONTACT INFORMATION FOR MORE INFORMATION: Kristal Benton, Senior Project Manager

Jobs and the Economy A GUIDE TO THE SMALL BUSINESS VENTURE CAPITAL TAX CREDIT PROGRAM. Under

Jobs and the Economy A GUIDE TO THE SMALL BUSINESS VENTURE CAPITAL TAX CREDIT PROGRAM Under s. 11.13-11.17 of The Income Tax Act (Manitoba) (the "Act") and Regulation #181/2007 (the "Regulation") TABLE