The Ontario government announced today that it plans to eliminate its 15% tax credit for investors in Labour Sponsored Investment Funds (LSIFs) no earlier than the end of the 2005 taxation year.

“The LSIF tax credit was introduced when there was a need to kick-start the venture capital sector in Ontario,” said Finance Minister Greg Sorbara, in a release.

“Ontario’s venture capital market is much healthier now, and we believe that this incentive is no longer the best fit in today’s economic and fiscal climate.”

The government said Ontario’s venture capital market includes more than 200 private sector venture capital funds, and close to 200 U.S. funds have invested in Ontario companies over the past six years.

The province will introduce legislation that would, if approved, eliminate the LSIF tax credit no earlier than the end of the 2005 tax year.

The federal government continues to offer its own tax credit for LSIFs.

“Investors continue to have the option to invest in labour sponsored investment funds,” Sorbara said.

“Our proposal would simply end the added Ontario incentive. To assist with an orderly exit, we will consult with the LSIF industry over the next three weeks on rules that will help fund managers manage their portfolios, while ensuring that government spending is directed to priority areas,” he added.