Income Tax Act 2007 section 257L

Investment to be in new shares or new qualifying debt investments

Section 257L sets out the types of investment that can qualify for social investment tax relief, covering both shares and debt instruments, and the conditions each must meet.

• Qualifying investments must be held throughout the shorter applicable period and take the form of either new shares issued by the social enterprise or qualifying debt investments (including loans and debentures) advanced to the enterprise.
• Shares must not carry any right to a fixed return — whether a fixed amount, a fixed rate, a rate tied to the amount invested, or a rate linked to any factor that does not depend on the enterprise's successful financial performance — and any return must not exceed a reasonable commercial rate.
• Both shares and qualifying debt investments must be the lowest-ranking instruments of their type on a winding up: shares must rank behind all debts (except qualifying debt investments) and not above any other shares; qualifying debt investments must be subordinated to all other debts (except equally ranking unsecured debentures) and rank equally with the lowest-ranking shares.
• Qualifying debt investments must also be unsecured — neither the principal nor any return may be charged on any assets — and the rate of return must not exceed a reasonable commercial rate.