Governments can influence the dollar amount invested in businesses in the Region through tax incentives. Individual investors in businesses registered under the CEDIF program can benefit from two beneficial personal tax incentives:
RRSP Elligible Investment
Registered Retirement Savings Plans are a type of savings account which can hold both savings and investments including CEDIF shares that grow tax free. For most people this means that you won’t be taxed on the dividends received from a CEDIF but it also means that you won’t be taxed on any other income (i.e. interest).
One unique characteristic of an RRSP is that the contributions are typically deducted from your taxable income which may reduce the amount of taxes payable. You may invest up to approximately $20,000 in one year in your RRSP which may have a favorable effect on taxes payable.
There are extensive considerations needed before placing shares in an RRSP, particularly if the shares are not redeemable, including the conversion of your RRSP to a Retirement Income Fund (RIF). Withdrawals from your RRSP are taxed as income but due to the effect of Canada’s progressive tax brackets there may be significant tax savings.
Equity Tax Credit
The Equity Tax Credit (ETC) provides a provincial income tax credit equal to 35 per cent of the investment made directly by a person in a CEDIF. The credit is available to individuals 19 years of age or older who are residents of Nova Scotia or are otherwise paying income tax to the Province. The maximum annual investment eligible for the tax credit is $50,000 for a maximum non refundable tax credit of $17,500 and eligibility for the full credit depends on the investor holding the shares for 5 years.