Law & Accounting Matters - August 2009
CAPITAL RAISING INCENTIVES FOR
QUEBEC-BASED ISSUERS AND INVESTORS
In today’s economy, we are all familiar with the difficulties facing corporations trying to raise capital. In an effort to boost the capitalization of Québec-based listed companies, the Québec government introduced in its 2009-2010 Budget, several major enhancements to its stock growth plan for small to medium-sized businesses. The plan has been renamed the “Stock Savings Plan II” (“SSP II”).
In a nutshell, the SSP II provides individuals (other than trusts) residing in Québec with income tax deduction opportunities for supporting the capitalization of Québec-based listed companies. Québec residents may deduct from their taxable income, at the provincial level, 150% of the adjusted cost of eligible shares, generally common shares, or 100% for eligible securities if the following requirements are satisfied:
- the eligible shares or securities are issued by a qualified issuing corporation under the SSP II;
- the eligible shares or securities must qualify under the law;
- an arrangement must be entered into by the investor and a dealer who will be entrusted with such shares and securities; and
- the minimum holding period requirements are respected.
The increased tax deduction of 150% is available for eligible shares acquired prior to January 1st, 2011 after which date, the tax deduction will return to 100%.
Qualified Issuing Corporation
In order to qualify as a “qualified issuing corporation” under the SSP II, a corporation must satisfy the following conditions:
- be a Canadian corporation with assets of less than $200 million;
- the corporation’s central management is in Québec;
- in its last taxation year, over one-half of the wages paid by the corporation were paid to Québec-based employees;
- throughout the preceding twelve months, the corporation carried on a business and had at least 5 full-time employees who were neither insiders nor related to insiders;
- not more than 50% of the value of the corporation’s property consists of investments other than certain qualified investments;
- the corporation is listed on a Canadian stock exchange; and
- the corporation has proceeded under the SSP II, with a public offering by way of prospectus or has obtained an exemption to file a prospectus.
Minimum Holding Period
In order to benefit from the tax deductions provided for under the SSP II, investors are required to hold the eligible shares or securities on December 31st of the year of acquisition and on December 31st of the two subsequent years subject to certain conditions.
An investor who includes an eligible share or security in a SSP II and withdraws it from the plan, for example by selling it, prior to the end of the minimum holding period, may be required to include an amount up to 150% of the adjusted cost of acquisition of the said eligible share or security in the computation of his income for Québec income tax purposes for the period in which the withdrawal occurred.
However, it is possible for that investor to reduce the amount that must be included in his income if he acquires an eligible share as a replacement within the prescribed delay. The individual may thus acquire eligible shares under the SSP II on the secondary market. Eligible shares under the SSP II are shares purchased through a Canadian stock exchange such as the Canadian Securities Exchange (“CSE”) of a corporation whose name appears on the list published by the Autorité des marchés financiers. This list includes the names of qualified issuing corporations who have made an offering under the SSP II or its predecessor during the course of the preceding four years as well as corporations who have filed an application with Revenue Québec in order to be listed.
The tax benefit under the SSP II is available to investors residing in Québec on December 31st of the year of acquisition. The deduction is subject to a maximum of 10% of the investor’s total income for the year.
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The improvements introduced to the SSP II should entice more corporations to be listed in order to have their shares qualify under the plan and therefore attract a greater number of investors. The SSP II will come to an end on December 31st, 2014.
This article is intended to provide a general summary and overview of the Québec Stock Savings Plan II and should not be construed as a legal opinion, tax opinion nor a complete legal analysis of the subject matter. Maria Pavelis and Emilie Bachand are lawyers at Colby, Monet, Demers, Delage and Crevier LLP, a law firm specializing in business law, securities and corporate finance. You can reach Maria Pavelis at (514) 284-3663 #254 or by email at firstname.lastname@example.org. Emilie Bachand can be reached at 514) 284-3663 #225 and her email is email@example.com
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