Community Enterprise Development (CED) Tax Credit Regulation

Community Enterprise Development (CED) Tax Credit Regulation, M.R. 231/2004 The Income Tax Act , C.C.S.M. c. I10 Regulation 231/2004 Registered December 17, 2004 bilingual version (HTML) Table of Contents Section 1 Definitions 2 "Eligible investment" defined 3 Application for approval to issue shares as eligible investments 4 Approval of proposed share issuance 5 CED tax credit receipt 6 Investment of proceeds 7 Prohibited use of proceeds 8 Time frame for investment and use of proceeds 9 Transfer restricted for three years 10 Annual report of shares issued 11 Annual report re subscription proceeds 12 Books and records Definitions 1(1) The following definitions apply in this regulation. "Act" means The Income Tax Act . (« Loi ») "affiliate" of a community enterprise means (a) in relation to a corporation, a person or partnership that is related to or affiliated with the corporation under section 251 or 251.1 of the federal Act; and (b) in relation to a partnership, a person or another partnership that is affiliated with the partnership under section 251.1 of the federal Act; but does not include a person or partnership that is declared under subsection (2) not to be an affiliate in relation to the community enterprise. (« affiliée ») "community development corporation" means (a) a corporation incorporated under Part XXI of The Corporations Act ; and (b) any other corporation that, having regard to its engagement in social or economic development in a municipality or other local area in Manitoba, the minister recognizes as a community development corporation. (« corporation de développement local ») "community development investment fund corporation" means a corporation that (a) is a taxable Canadian corporation; (b) is incorporated under The Corporations Act or The Cooperatives Act ; (c) maintains its head office in Manitoba; (d) is organized and operated primarily for the purpose of investing, in accordance with this regulation, in (i) community enterprises, or (ii) community development corporations; and (e) is sponsored or endorsed by a person or group of persons from the community in which the corporation proposes to make investments. (« corporation de gestion d'un fonds de placement en vue du développement local ») "community enterprise" at any time in a fiscal period means a partnership, corporation incorporated under The Cooperatives Act or taxable Canadian corporation incorporated under The Corporations Act that satisfies the following requirements: (a) the total carrying value (determined as at the beginning of the fiscal year in accordance with generally accepted accounting principles on a consolidated and combined basis, where applicable) of the property of the enterprise and of all of its affiliates (i) is not more than $25,000,000, and (ii) does not exceed the total indebtedness (determined in a similar manner) of the enterprise and its affiliates by more than $10,000,000; (b) either (i) the enterprise is a community development corporation, or (ii) at the beginning of the fiscal year, at least 90% of the carrying value of the enterprise's property is attributable to property used in an active business, other than an ineligible business, carried on by the enterprise; (c) the enterprise does not have more than 200 employees at that time; (d) at least 25% of the enterprise's employees are employed in Manitoba at that time; (e) at least 25% of the total wages and salaries paid or payable by the enterprise for the part of the fiscal year that precedes that time is reasonably attributable to work performed in Manitoba. (« entreprise établie dans une collectivité ») "equity share" means (a) a share in the capital stock of a corporation incorporated under The Corporations Act , the terms and conditions of which or that apply to the share (i) do not preclude the holder, on a reduction or redemption of the corporation's capital stock, from participating in the corporation's assets beyond the amount paid up on the share plus a fixed premium and a defined rate of dividend, and (ii) do not entitle the holder to require the share to be redeemed, purchased or converted; or (b) an investment share as defined in The Cooperatives Act . (« action participative ») "ineligible business" means a business the principal purpose of which is to derive income from one or more of the following: (a) property, other than commercial property owned by a community development corporation or by a corporation controlled by a community development corporation; (b) providing management, administrative, financial or other similar services; (c) providing maintenance services, unless they are provided primarily to persons who deal at arm's length with the provider; (d) farming, fishing, forestry, hunting, resource exploration or other similar activities; (e) operating amusement or gaming facilities or activities; (e.1) operating facilities for the performing arts or organizing performing arts events; (e.2) operating facilities for recreational or sporting events or activities, or organizing recreational or sporting events or activities; (f) a business that would be a personal services business as defined in subsection 125(7) of the federal Act if that definition were read without reference to paragraphs (c) and (d); (g) providing seasonal facilities, services or activities, such as recreational parks or camps, hunting or fishing lodges or camps, or golf courses; (h) providing professional services that are governed by an Act of the Legislature; (i) providing educational, health care, social or other similar services, unless they are recognized by the minister as being eligible in the circumstances; (j) any other activity that, in the opinion of the minister, (i) does not constitute or promote community economic development, or (ii) it would be contrary to public policy to support with public funds. (« entreprise non admissible ») "investment proceeds" means proceeds received by a community enterprise from the investment by a community development investment fund corporation of its subscription proceeds. (« produit de placement ») "minister" means the minister appointed to administer sections 11.8 to 11.12 of the Act. (« ministre ») "subscription proceeds" means proceeds received by a community enterprise or by a community development investment fund corporation from issuing shares as eligible investments, net of the issuer's reasonable expenses of issuing the shares, to the extent that those expenses were paid or are payable to persons with whom the issuer is dealing at arm's length. (« produit de souscription ») "taxable Canadian corporation" means a taxable Canadian corporation as defined in the federal Act, but does not include a corporation that is a prescribed venture capital corporation under Part LXVII of the federal regulations. (« corporation canadienne imposable ») 1(2) Upon application to the minister by a corporation or partnership, the minister may declare another person or partnership not to be an affiliate of the applicant for the purposes of this regulation. M.R. 255/2014 ; 57/2018 "Eligible investment" defined 2 For the purpose of subsection 11.8(1) of the Act and this regulation, "eligible investment" of an individual means one or more equity shares that (a) were issued to the individual, or to a qualifying trust for the individual, by a corporation that, at the time of issuing the shares, was a community enterprise or community development investment fund corporation; (b) were issued as part of an issuance of shares that was approved under this regulation; (c) together with all shares acquired by the individual or a qualifying trust for the individual as part of the issuance, do not comprise more than 10% of all the shares issued as part of the issuance; and (d) do not qualify for any tax credit under the Act other than the CED tax credit. M.R. 57/2018 Application for approval to issue shares as eligible investments 3(1) A corporation that wishes to issue shares as eligible investments must apply for and obtain the minister's approval to do so. 3(2) The corporation's application must include the following information or documents: (a) its name and the location and mailing address of its head office; (b) a copy of its by-laws and its articles of incorporation; (c) copies of all agreements relating to the corporation's shares or its governance; (d) its most recent annual financial statements and income tax return; (e) the price for which the shares are proposed to be issued, the maximum number of shares to be issued and the period of time within which they are to be issued; (f) the terms and conditions that will apply to the shares to be issued, including any ownership restrictions affecting those shares; (g) its proposed use of the subscription proceeds; (h) in the case of a community development investment fund corporation, its investment policies; (i) any other information the minister requires. 3(3) The completeness and accuracy of the information set out in the application must be attested to, in writing, by (a) a director of the corporation; and (b) an officer of the corporation. Approval of proposed share issuance 4(1) The minister may approve, with or without conditions, an application that meets the requirements of section 3. The approval must specify the year in which the shares may be issued as eligible investments. 4(2) The minister may refuse to approve all or any part of a proposed issuance of shares if the total subscription price for the shares to be issued exceeds $3,000,000. M.R. 127/2009 ; 255/2014 CED tax credit receipt 5(1) Every CED tax credit receipt provided by an issuer in respect of shares issued as eligible investments must be provided using a form of receipt provided by the minister to the issuer, and must contain the following information: (a) the name and address of the investor and (i) in the case of an individual or a qualifying trust for the individual, the individual's social insurance number, or (ii) in the case of a corporation, its business number for the purposes of the Act; (b) the name and address of the issuer, and any other name under which it is carrying on business; (c) the date on which the eligible investment was issued to the investor; (d) the number of shares issued to the investor as an eligible investment, and the amount of money paid by the investor as the subscription price for the shares; (e) the amount of the CED tax credit that is available in respect of the shares or would be available if the investor received no government assistance other than the CED tax credit in respect of the shares; (f) a unique serial number provided to the issuer by the minister after receiving the information to be provided under subsection (3); (g) any other information stipulated by the form of receipt approved by the minister. 5(2) For the purpose of subsection 11.8(2) of the Act, the cost of shares acquired as an eligible investment is deemed to be the amount by which (a) the amount of money paid by the investor as the subscription price for the shares; exceeds (b) the amount of any government assistance, other than the CED tax credit, received by the investor in respect of the shares. 5(3) Before the minister provides an issuer with serial numbers for the CED tax credit receipts to be issued by the issuer, the issuer must provide the following information to the minister for each receipt to be issued: (a) the name of the investor to whom the receipt is to be issued; (b) a copy of the investor's signed acknowledgement of risk statement; (c) the number of shares purchased by the investor and the number of the share certificate issued in respect of those shares; (d) the total amount paid by the investor as the subscription price for the shares; (e) a statement confirming that the subscription price was paid and that the shares were issued to the investor; and (f) any other information required by the minister. 5(4) Within 30 days after receiving the serial numbers from the minister, the issuer must (a) issue the CED tax credit receipts to be issued with those serial numbers; and (b) provide a copy of each receipt to the minister. M.R. 57/2018 Investment of proceeds by community development investment fund corporation 6(1) A community development investment fund corporation must invest its subscription proceeds in one or more of the following: (a) an equity share issued by a community enterprise to the corporation; (b) a partnership interest issued by a community enterprise to the corporation; (c) a debt obligation that (i) is issued by a community enterprise to the corporation, (ii) by its terms, or the terms of any agreement applicable to it, does not restrict the enterprise from incurring other debts, (iii) is subordinated to all other debt obligations of the enterprise (other than a debt obligation owing by the enterprise to a shareholder or partner of the enterprise or to a person related to such a shareholder or partner), and (iv) is not secured in any manner whatever, or is secured only by a floating charge on the assets of the enterprise. 6(2) A community development investment fund corporation may also set aside and use its subscription proceeds to support a guarantee of a debt obligation that, if issued to the corporation, would be a debt obligation referred to in clause (1)⁠(c). M.R. 57/2018 Prohibited use of proceeds 7(1) Subscription proceeds of a corporation and investment proceeds of a corporation or partnership must not be used directly or indirectly for any of the following: (a) to pay for a business reorganization, including a merger, amalgamation or winding-up; (b) to finance, refinance or restructure the debt or equity of any corporation or partnership otherwise than as permitted by section 6; (c) to acquire an interest in land, unless (i) the ownership of that interest is necessary or incidental to the active business carried on by it, or (ii) the land is owned by a community development corporation or by a corporation controlled by a community development corporation; (d) to pay a dividend, make an advance or return capital to a member or shareholder; (e) to pay an amount owing to (i) a member of the partnership or a shareholder of the corporation, (ii) an affiliate of the partnership or corporation or a member or shareholder of such an affiliate, or (ii) a person related to a member or shareholder referred to in subclause (i) or (ii); (f) to carry on, or invest in, a business outside Manitoba; (g) for any use or purpose that is not included in the proposed use of proceeds filed with the minister under section 3 and has not otherwise been approved by the minister in writing; (h) to carry on or finance any other activity which, in the opinion of the minister, is contrary to public policy or does not contribute to community economic development. 7(2) Before a community development investment fund corporation invests subscription proceeds in a community enterprise, the corporation must satisfy itself that the enterprise will (a) observe the restrictions under subsection (1) on its use of the investment proceeds; (b) within one year after receiving the investment proceeds, use those proceeds in accordance with the proposed use of proceeds that (i) was filed with the minister under section 3, or (ii) has been otherwise approved by the minister in writing, and, in the meantime, invest those proceeds only in the manner in which subscription proceeds may be invested under subsection 8(3); (c) provide the corporation with all information necessary for the corporation to complete its annual report to the minister under section 11; and (d) allow the corporation to (i) monitor the enterprise's use of the investment proceeds, and (ii) make any audit or inspection of the enterprise's property, books and records reasonably necessary for it to verify the enterprise's use of the investment proceeds and to verify the information provided to the corporation as contemplated by clause (c). Time frame for investment and use of proceeds 8(1) The subscription proceeds received by a community enterprise or a community development investment fund corporation in a calendar year (a) must be used or invested by it in accordance with this regulation and the proposed use of those proceeds that (i) was filed with the minister under section 3, or (ii) has been otherwise approved by the minister in writing; and (b) must be so used and invested (i) in the case of a community development investment fund corporation, before the end of the second year after that calendar year, or (ii) in the case of a community enterprise, before the end of the first year after that calendar year. 8(2) Despite subclause (1)⁠(b)⁠(i), the subscription proceeds received by a community development investment fund corporation in (a) the calendar year in which it first issued shares as an eligible investment; or (b) the immediately following calendar year; need not be used and invested as required by clause (1)⁠(a) until the end of the third year following that first calendar year. 8(3) Until they are used and invested as required by clause (1)⁠(a), subscription proceeds may be invested only in one or more of the following: (a) money on deposit with (i) a bank to which the Bank Act (Canada) applies, or (ii) a credit union or caisse populaire to which The Credit Unions and Caisses Populaires Act applies; (b) a short-term guaranteed investment certificate issued by a financial institution mentioned in clause (a); (c) an interest in a money market fund that may be redeemed upon demand. M.R. 57/2018 Transfer restricted for three years 9 An equity share issued as an eligible investment must not be transferred within three years after it was issued except (a) as a consequence of the death of an individual, to the individual's estate or to his or her heirs; or (b) for the purpose of a redemption mentioned in subsection 11.11(2) of the Act. M.R. 57/2018 Annual report of shares issued 10(1) Within 120 days after the end of each calendar year in which a community enterprise issues shares as an eligible investment, it must provide to the minister a written report that includes the following information: (a) the community enterprise's name and address; (b) the calendar year to which the report relates; (c) the class or classes of shares issued as eligible investments in the year; (d) for each individual, qualifying trust for the individual or corporation to which the community enterprise issued one or more shares as eligible investments for the year, (i) the name and address of the investor, and (A) in the case of an individual or qualifying trust for the individual, the social insurance number of the individual, and (B) in the case of a corporation, its business number for purposes of the Act, (ii) the number of shares issued in the year to the investor, and (iii) the investor's CED tax credit in respect of those shares. 10(2) The completeness and accuracy of a community enterprise's report under subsection (1) must be attested to, in writing, by an officer of the community enterprise. M.R. 57/2018 Annual report re subscription proceeds 11(1) For each calendar year in which a community enterprise receives subscription proceeds, and for each of the next three years, the community enterprise must provide to the minister, within 120 days after the end of the year, a written report that includes (a) the community enterprise's most recent financial statements prepared or audited by a professional accountant who (i) is a registered member in good standing of an institute, association or society of accountants established by an Act of the Legislature, and (ii) is not an officer or employee of the community enterprise; (b) a statement of the subscription proceeds received in the year and in each of the three preceding years, and how and when those proceeds were used or invested or are intended to be used or invested; and (c) a statement showing the impact from the issuance of eligible investments and the use and investment of the subscription proceeds, such as (i) the number and type of jobs created or maintained, (ii) the value of assets acquired, (iii) the ownership of the community enterprise, and (iv) any other information that, in the minister's opinion, will assist in measuring the achievement of objectives stated or implied by the initial proposal for the issuance of the shares. 11(2) The completeness and accuracy of a community enterprise's report under subsection (1) must be attested to, in writing, by an officer of the community enterprise. M.R. 57/2018 Books and records 12(1) A community development investment fund corporation that receives subscription proceeds and a community enterprise that receives subscription proceeds or investment proceeds must keep records in such form and containing such information as the minister considers necessary to verify information contained in a report under section 10 or 11. 12(2) A community development investment fund corporation or community enterprise required to keep records under this section (a) must keep them at its head office in Manitoba or at any other location in Manitoba approved by the minister; and (b) must retain them for the period of time that a person's records are required by the Act to be retained for the purposes of administering and enforcing the Act. M.R. 57/2018