ADVANCED TOPICS
Capital Gains Tax

Should you delay contributing your shares to an RRSP, and contribute them at a higher book value, the increase is a Capital Gain that must be disclosed, of which 50% is taxable unless you have old Capital Losses to tax shelter the gain.

Contribution To A Tax Free Savings Account TFSA

Should you prefer to avoid paying future taxes on an RRSP redemption should the business succeed as hoped, you could instead contribute the shares to a TFSA to tax shelter future Capital Gains on redemption.

Option For Retirees

For those no longer making contributions to RRSPs, subject to approval by individual trustees, the investment can be purchased directly by the Self Directed RRSP or RIF, with the Tax Credit being received by the beneficial owner of the account.
PDF Supplemental Documentation

Additional material in print form is also available here.
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Financial Planning Tax-Sheltered Investing Capturing Capital Gains

Our Principal Investment - A BC Venture Capital Company
30% Tax Credit

Investors in a BC VCC receive a 30% Tax Credit through their next Income Tax return. This is a simple refund, and is in no way related to your taxable income. You receive a Tax Credit Certificate from the VCC to include in your Income Tax return.

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RRSP Eligible

Shares in a BC VCC are eligible for contribution to an RRSP. While they are shares of a private company, as part of a Provincial program that is part of a larger Federal program to help finance small business, the Federal Government has designated it in Section 6700 (a) (vi) of the Income Tax Act as an eligible investment.

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The Math Of Saving Taxes
Your Basic Tax Strategy

Combining the 30% Tax Credit with the benefit of contributing the stock to an RRSP, your cash return from Income Tax reduction for a sample $10,000 investment is as follows.:

  • a) 30% Tax Credit for a $10,000 investment - $3,000.
  • b) contribution of the shares to an RRSP at a margin tax rate of 40% - $4,000.
  • c) total investment recovery - $7,000.

This has mitigated your investment risk by 70%, and can be accomplished within the tax year or RRSP season to redirect cash that would otherwise go to the CRA.

Delay the RRSP Contribution and Recover More

Our VCC typically progresses through securities offerings over time at increasing prices as earlier investments begin to mature and build asset value.

If for example the offering price moved up by 50%, your contribution value on a $10,000 purchase would move to $15,000. Combining the 30% Tax Credit with the benefit of contributing the stock to an RRSP at the higher value, your cash return from Income Tax reduction for an original sample $10,000 investment is as follows.:

  • a) 30% Tax Credit for a $10,000 investment - $3,000.
  • b) contribution of the shares to an RRSP at a margin tax rate of 40% - $6,000.
  • c) total investment recovery - $9,000.

This has mitigated your investment risk by 90%, but is typically not accomplished within the same tax year or RRSP season so that you must carry the investment cost in the interim. Note that the VCC Tax Credit always is received in the tax year.