Information on Labour Sponsored Venture Capital Corporation (LSVCC) Tax Credit

February 27, 2015

The LSVCC tax credit provided a 15% federal tax credit for investments of up to $5,000 per year into labour sponsored funds. It is an example of inclusive capitalism, bringing together individual investors, labour unions, and small and medium-sized enterprises.

In Budget 2013, the Conservative government announced that it would phase out the LSVCC tax credit. The phase out is occurring over the next three years, with investments generating a 10% tax credit in 2015, a 5% tax credit in 2016, and by 2017, it will be eliminated entirely.

In addition to the credit, provincial legislation, where it exists, requires investors to hold their money in the LSVCC for a certain number of years. Typically this has been five to eight years. Quebec requires investors to keep their money in the LSVCC until they reach the age of retirement with a few exceptions, such as accessing the money to return to school. This has made LSVCCs a tremendous retirement savings vehicle for residents of Quebec, with more than 650,000 claiming the credit.

Currently, over 60 percent of investments made by the funds are made in Quebec.

History of LSVCCs in Canada

Le Fonds de solidarité des travailleurs du Québec (FSTQ), Canada’s first LSVCC, was created in Quebec in 1983 in response to the recession of 1981 to 1983, which left small start-up firms virtually unable to access capital. Today it has net assets of $10.5 billion, and invests not only in small and medium-sized businesses, but training for Quebec workers.

Fondaction CSN, the province’s second largest fund, was created in 1995, and today has net assets of $1.2 billion. It centres its investment efforts on companies focused on sustainable development and the social economy.

In 1988, the federal LSVCC tax credit was introduced by Prime Minister Brian Mulroney’s government.The credit provided a 15% federal tax credit for investments of up to $5,000 per year. When combined with Quebec’s provincial credit it provided investors with an immediate 30% return on investment.