The Ontario government has enacted certain changes to the provincial
legislation providing for tax credits for investments in labour
sponsored venture capital corporations such as the Fund. These
changes will phase out the 15% Ontario tax credit by the end
of the 2011 RRSP sales season. The credit will remain in place
at the 15% level through the 2009 RRSP season, will be reduced
to 10% and 5% thereafter through the 2010 and 2011 RRSP sales
seasons, respectively, and thereafter will be eliminated.
The Ontario government has introduced rules which allow an
LSIF, whose fund manager has determined that continuing in the
program was not in the best interest of shareholders to exit
the program without penalty to the fund or to shareholders.
The primary benefit of being a registered LSIF is ongoing access
to capital associated with the tax credits. The primary cost
of being registered as an LSIF is compliance with the investment
requirements.
An LSIF choosing to exit the LSIF program in Ontario must notify
the Minister of Finance (Ontario) of its intention to wind-up.
The notice to the Minister must identify a reasonable date for
the end of the wind-up period (the wind-up date), when the LSIF
would surrender its registration. Any public statement of an
LSIF’s intention to wind-up (e.g. in a prospectus, through press
release, on a website) will be considered to be notification
to the Minister. An LSIF that notifies the Minister of its intention
to wind-up would be subject to the following rules:
- following notification, the LSIF would no longer be eligible
to issue tax credits;
- class A shares redeemed as part of the wind-up, and occurring
within a reasonable number of days before the wind-up date,
would not be subject to a claw-back of the tax credit under
section 14.1 of the Ontario Act; or
- while winding up, LSIFs would not be subject to investment
requirements under section 17 of the Ontario Act.
The wind-up rules vary based on the date of notification. If
notification is received by the Minister:
- after January 31, 2006 but prior to January 31, 2007 the
LSIF would not be subject to pacing requirements for the year
in which notice was received and the prior year if notice
was received in the first 31 days of the year.
- An LSIF that notifies the Minister after January 31, 2007
of its intention to wind-up would be permitted to use the
wind-up rules only if it had raised less than 20 percent of
its Class A equity, excluding Class A shares that have been
outstanding for at least eight years, in the 24 months prior
to notification.
The Manager will continue to monitor the costs and benefits
associated with being an LSIF to ensure ongoing registration
is in the best interest of shareholders. The Manager currently
believes that a number of viable options exist given the changes
introduced by the Ontario government. These options include:
- continue to operate as an Ontario registered LSVCC until
the program expires;
- broaden the Fund’s mandate and register as a LSVCC under
federal legislation; or
- effect a conversion to an exchange listed entity providing
a liquidity option to the Fund’s shareholders, The Manager
will continue to review these options and make recommendations
to the Board of Directors. If the Fund decides to proceed
with a restructuring it may, depending on the nature of the
restructuring, be required to seek shareholder approval at
a special meeting of shareholders of the Fund.
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