What is a Capital Investment Tax?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 August 2019
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A capital investment tax credit is a tax incentive the government provides to investors who contribute capital to startups and small businesses. Such tax credits, where available, allow small businesses to access more capital when they are starting up. Capital and cash flow problems can be a significant obstacle to getting a business off the ground and government programs to support business creation may be beneficial, especially in periods of economic hardship, where new businesses often have trouble getting loans and must access capital through investors.

Not all regions offer a capital investment tax credit. In those that do, people generally need to invest in qualifying businesses. Qualification is determined by the size and age of the business. People usually need to invest in small, new businesses, rather than larger, more established companies. The tax credit is provided specifically for capital investment, not for other kinds of investment activities.

People can claim the capital investment tax credit on their tax filings for the appropriate year. When they start receiving returns on their investment, these are taxed. Depending on the region, the tax classification used for this type of investment income varies. The tax code may allow people to offset their tax liability with the capital investment tax credit over multiple years by spreading out the tax credit. An accountant can provide more information about the specific laws.


Tax incentive programs can encourage small investors to get involved with new companies. Under normal tax conditions, putting money into a capital investment might not be feasible. A tax credit, where tax liability is offset by the amount of the credit, provides an opportunity; essentially, people are applying part of what they would have paid in taxes anyway to the investment. The capital investment tax credit may also help keep money in a community, a concern in economically depressed areas.

To see if a capital investment tax credit is available, people can ask accountants or tax authorities. Startup businesses are also usually aware of available tax incentives and can provide information to their investors. It is important to make sure the investment is carried out and documented properly so there are no problems with claiming the tax credit. If there is any confusion, it should be addressed before filing tax documents. The company should send out tax paperwork with information about the investment and any errors must be corrected with an amended form.


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