One of the peculiarities about early-stage investing in BC is the 30% EBC (“Eligible Business Credit”) tax credit for investors.
Qualifying investments can see 30% of their principal investment returned as a tax credit within the year.
This means that an investor who invests $100k gets $30k back via a tax credit. It’s great!
Requirements (or review the full program details):
- Be a BC registered corporation
- Apply for, and get the allocation
- Sell equity (common or preferred shares, note on convertible or SAFEs below)
Alberta (“AB”) has an identical program for AB companies. Unfortunately, there is no reciprocity between provinces. AB investors investing in BC companies, or vice versa, are out of luck.
The tax credit is for equity investments. There’s some uncertainty in how they work for SAFEs or convertible notes. The best guidance I’ve seen suggests that the tax credit triggers at the time a SAFE or note converts to equity, not when the investment is made.
EBC as a compelling event to close investment
The tax credit has an annual allocation that startups apply for. The allocation ends on Feb 28. After that date, you can reapply for next year’s allocation.
But here’s the great news: sometimes, the allocation runs out early.
And it’s difficult to get “up to the minute” information about it.
This gives the entrepreneur a compelling event to close investment now, instead of later. The entrepreneur need only remind potential investors about it in their e-mail follow-ups.
“Folks, quick reminder that if the 30% EBC tax credit is important, we need your investment completed by Feb 28th at the latest.”
My experience: $50k in 48 hours
EBC eligibility is something I try to reference in pitch decks, usually on the “investment opportunity” slide. I’m terrible at remembering to say something during angel pitches about it.
But on a recent fundraising pitch to a group of high net worth investors, it was 1) in the deck, and 2) the beginning of February. That single line of text led to $50k in investment from two shareholders that closed in less than 48 hours.
In summary, there can be real tax incentives for some investors to invest in your company over other asset classes. Tax incentives shouldn’t be the main reason they invest (it’s generally helpful that investors believe in your vision