American Independent Business Alliance

New Brunswick Tax Breaks Encourage Local Business Investments

New Brunswick Tax Breaks Encourage Local Business Investments

By Chelsea Eddy
Updated January 27, 2017

Investing in one’s own local business community, rather than in publicly-traded corporations, is an idea generating interest globally. Yet progress enabling such opportunities has come slowly in the U.S., as federal and state laws impeding such investments by average citizens have been slow to change. Now that the Securities and Exchange Commission has revised rules to lower many legal obstacles to local investing, we might look to one innovative Canadian province for an example of policy actively encouraging it.

New Brunswick’s Small Business Investor Tax Credit Program harnesses local wealth and encourages community-rooted economic development by giving generous tax credits to residents and companies to invest in their own communities. 

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Christina Allain runs the blog Éclectique Eats and worked at New Brunswick’s Real Food Connections (which recently closed in 2016), a former participant in the Small Business Investor Tax Credit program

Under the 13-year old law, individuals receive a whopping 50% personal income tax credit for investments in approved local businesses, up to $125,000 per year (about $95,000 U.S. as of publication) for a $250,000 investment. (The original tax credit was set at 35%, but it was recently bumped up to 50%). Corporations and trusts enjoy a 15% income tax credit of up to $75,000 per year for a $500,000 investment. While the tax credit is capped, individuals and companies are welcome to make larger donations.

In 2015, the New Brunswick regulators approved 153 applications from companies and 601 investors to use the credit. The companies raised $31.2 million from eligible investors, who received a total of $15.7 million of tax credits, according to officials, who are prohibited from specifying companies or investors that have used the program.

Equally important, New Brunswick’s program creates a trusted platform, lowering the psychological barrier for novice investors to move into unfamiliar territory. While the government cannot prevent the possibility of failed investments, it does assure investors their contributions are going to legitimate, local businesses and provides protection from fraud.

As well as providing an opportunity for citizens to invest their savings in a way reflecting their values and helping their local economy, such community investment can fill a persistent gap in funding for smaller entrepreneurs. In the latest annual survey of more than 3,000 independent business owners by the Institute for Local Self- Reliance, 30% of respondents who sought loans reported being unable to obtain one.

Tax Incentives in the US?

In the U.S., states including New Jersey, Kentucky and Michigan offer tax credits for local investments, but they only apply to angels and accredited investors. And the programs tend to target high-growth tech or life sciences companies.

Local investing expert
Michael Shuman

“No state has yet done anything close to what New Brunswick has accomplished—incentivizing everyone to invest in all kinds of local business,” says author and local economist Michael Shuman, who advocates for the creation of similar programs in the U.S.  “If nothing else, this kind of law means that investment advisers will now counsel their clients to find every promising local business opportunity they can—which amounts to a bonanza for local economic development,” he says.

In addition to providing an opportunity for citizens to invest their savings in a way that reflects their values and helps their local economy, such community investment can fill a persistent gap in funding for smaller entrepreneurs. In the latest annual survey of more than 3,000 independent business owners by the Institute for Local Self-Reliance, 30% of respondents who sought loans reported being unable to obtain one.

Building on the success of the SBITC, New Brunswick last spring authorized a new tax credit for Community Economic Development Corporations that allows pools of funds to be raised from citizens with the purpose of investing locally.

SBITC Eligibility Requirements for Businesses

New Brunswick small businesses and cooperatives from any business sector may submit an application to participate in the program, assuming they meet eligibility requirements. Some key requirements:

  • Registered or incorporated as a New Brunswick business
  • A majority of the entity’s assets are used to generate business income in the province.
  • Pays at least 75% of wages to New Brunswick residents. If the entity exports over 50% of goods/services, it pays at least 50% of its wages to provincial residents.
  • Raises a minimum of $10,000 and does so through at least three different investors

Investor Eligibility Requirements

Individual investors must be adult residents of New Brunswick and are required to invest a minimum of $1,000. Corporation or trust investors must have a permanent establishment in New Brunswick and are required to invest a minimum of $50,000. Click here for a complete list of eligibility requirements.

For more information on the Small Business Investor Tax Credit Program, see their overview and FAQ pages.

Do you know of similar programs that encourage local investing in small business development? We’d love to hear from you if so!

Chelsea Eddy is the Engagement Coordinator at the American Independent Business Alliance. Thanks to Michael Shuman, author of The Local Economy Solution, for informing us of the New Brunswick Program.

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