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25 FEATURE ARTICLE David Truong CIWM, F.Pl., M. Fisc. Advisor, Expertise Center National Bank Private Banking 1859 On the federal return, the TCLSF reduces income tax payable and is not used to calculate it. This is especially important for Québec residents because the income tax calculation has to take into consideration the 16.5% abatement on all rates and credits. The federal TCLSF is therefore 15% for Québec residents and is applied to the income tax calculated after the abatement. It should be noted that the 20% provincial credit for Fondaction is temporary. The provincial government announced in its 2018-2019 budget that the rate would drop to 15% on May 31, 2021, matching the provincial amount of the FSFTQ credit. TCLSF Eligibility Conditions If the fund is registered with a province, the federal credit can only be claimed if the same credit is available at the provincial level. In Québec, people cannot claim the federal or provincial TCLSF if they are in any of the following situations: • They are 65 or over in the year when the TCLSF is claimed. • They are 45 or over and retired or in pre- retirement in the year when the TCLSF is claimed. • They redeemed their labour-sponsored fund shares within 60 days of acquisition. • They transferred the shares to a spousal RRSP or spousal RRIF when the spouse was 65 or over in the year when the TCLSF is claimed or the spouse was 45 or over and retired or in pre-retirement in the year when the TCLSF is claimed. A person is considered to be retired or in pre- retirement if, in the year when the TCLSF is claimed, they are in one of the following situations: • They received retirement benefits from the Québec Pension Plan (QPP) or Canada Pension Plan (CPP). • They received retirement benefits from a registered pension plan (RPP) or a registered retirement savings plan (RRSP), or payments from a registered retirement income fund (RRIF), a pooled registered pension plan RRSP: TRADITIONAL FUND OR LABOUR- SPONSORED FUND? When RRSP season ramps up in January and February, it's time for the dawdlers to contribute to their RRSP for the year that just ended. It's also time for financial institutions to encourage those same people to make their contributions through them. What if you were offered an additional 30% income tax credit? That is exactly what labour-sponsored venture capital corporations (LSVCCs) do. Since the risk is generally higher with these funds, both levels of government offer tax benefits to people who contribute to them. So, for an RRSP investment, is it better to opt for traditional funds or a labour-sponsored fund? What Are They? A labour-sponsored fund is an investment fund sponsored by a union organization that offers risk capital to provincial small and medium businesses. The fund's purpose is to participate in the economic development of the province by investing in companies that are likely to create or maintain jobs or foster the development of the workforce. The Autorité des marchés financiers deems the risk with this kind of fund to be medium to high. A labour-sponsored fund can be registered in Canada, Québec or any other province. In Québec, the two main players are the Fonds de solidarité FTQ (FSFTQ), created in 1983, and Fondaction, the CSN development fund, created in 1996. To be considered an LSVCC at the provincial level, the fund has to invest and maintain at least 60% of its equity in eligible investments, generally investments in small and medium businesses. Tax Incentive The tax credit for a labour-sponsored fund (TCLSF) is a non-refundable tax credit offered at the federal level and by most provinces. Any unused part of the credit can be deferred to the next tax year. For the credit, the total value of shares acquired in the fund cannot exceed $5,000. For 2019, the TCLSF rates are as follows: Fund Federal tax credit Québec tax credit Total Fondaction 15% 20% 35% FSFTQ 15% 15% 30%

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