If you own a craft beverage business that’s looking to grow, you know it can be hard to incentivise investors to part with their money. But what if you told them they could earn a sizable chunk of their money back, regardless of how well the business performs?
Well, micros operating in British Columbia can do just that thanks to the Eligible Business Corporation (EBC) Tax Credit Program. The scheme has emerged as a powerful tool for encouraging investment in the province’s burgeoning craft beverage scene. It offers a tantalizing 30% refundable tax credit to investors and is regarded enviously by micros in other provinces. But what makes this program ideal for microbreweries in BC, and could it be the key to their growth and innovation?
What is the EBC Tax Credit?
At the heart of the EBC Tax Credit Program is the goal of stimulating investment into sectors deemed critical for the province’s economic diversity and innovation. It offers a 30% refundable tax credit for investors who put their resources into “Eligible” Businesses, including craft breweries.
It is a way for craft breweries, wineries, and distillers to raise up to $10 million in equity capital from tax-accredited investors. It also provides incentive for people who value the craft beverage industry’s growth and innovation to support it financially. Through the EBC tax credit, eligible businesses gain access to much needed capital, enabling them to scale, innovate, and thrive in a challenging, ever-evolving market.
With an annual limit set at $120,000 investment per investor, this translates into a maximum tax credit of $400,000. This is a powerful way to attract substantial investments into your small business.
The inclusion of RRSP eligibility further sweetens the deal, offering a pathway for investors to receive the tax credit personally, tax-free
Eligibility for craft breweries
Eligibility hinges on a business being “substantially engaged” in qualifying activities, which, for the craft brewing sector, includes manufacturing and processing activities intrinsic to microbreweries, wineries, distilleries, and cideries. Only businesses with at least 50% of their assets related to these activities can benefit from the program.
To qualify as an Eligible Business Corporation (EBC), a business has to show that the benefits of the program are localized and impactful. The criteria for this includes having at least 80% of the business’s assets located within BC, maintaining a workforce of no more than 100 employees at the time of registration, and ensuring that at least 75% of annual wages and salaries are paid to BC employees. Furthermore, the business must have raised at least $25,000 in equity capital and must be properly incorporated and registered to operate in BC, along with having a permanent place of business in the province.
Investment options and vehicles
The EBC tax credit offers two distinct pathways for investors: direct investments and Venture Capital Corporations (VCCs). Each path caters to different investment strategies.
Direct investments involve investors putting their capital directly into an Eligible Small Business (ESB), like a craft brewery, which qualifies them for the tax credit. However, this comes with a commitment: the investor must hold onto the investment for a minimum of five years. This long-term investment strategy ensures that breweries receive sustained support, crucial for their growth phases, including expanding production capacities or entering new markets.
Alternatively, investments through VCCs offer a more flexible approach. Investors can invest in a holding company that, in turn, distributes funds to various eligible businesses, including craft breweries. This method does not require the investor to adhere to a five-year hold period, offering liquidity and flexibility. The VCC, however, is obligated to keep the funds invested in the business for at least five years.
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Limits and investment caps
For individual investors, the program offers a tax credit that is fully refundable up to $120,000 per year, based on a maximum investment of $400,000. Corporate investors, while not subject to a direct investment limit, can apply the tax credit only against BC income tax owing, with the possibility of carrying unused portions forward for four years.
Investments can be made in various forms, including common shares, preferred shares, or convertible rights, with the clear stipulation that only cash investments for shares issued by a corporation or co-op that has successfully registered with the program are eligible.
Challenges and limitations
Despite the many benefits of the EBC tax credit program, it’s not without its challenges and limitations. A notable constraint is the program’s exclusivity to BC residents. This limitation means that non-BC residents looking to invest in the province’s craft breweries do not receive the same favorable tax treatment, potentially limiting the pool of investors.
Other challenges include, as already mentioned, the strict requirements in place for both investors and businesses to maintain their eligibility. These requirements add layers of complexity and could deter potential investment.
How to register for the EBC Tax Credit Program
For craft breweries, wineries, and distilleries, the EBC program offers a golden opportunity to access critical funding. The incentive for investors is also compelling, offering substantial tax credits while encouraging a long-term commitment to support BC businesses.
Click here for a copy of the registration application for consideration as an Eligible Business Corporation (EBC). An application can also be made online here.
For help setting up an EBC, or if you are looking for other fundraising opportunities, Brewfundr helps micros reach their growth goals. For more information, contact us today or book a meeting for a free consultation.
