By James Langton
(January 10 – 17:00 ET) – Late last year the federal Department of Finance confirmed the favourable tax treatment of Tier 3 Canadian Venture Exchange companies. Now the CDNX is outlining tax considerations which follow from Tier 3 not being considered a prescribed stock exchange.
Tier 3 CDNX companies were formerly quoted on the Canadian Dealing Network, which is not a prescribed stock exchange under the Income Tax Act. As a result, CDN-quoted corporations generally attracted unique income tax treatment that affected both the corporations and their investors.
The potential for this unique tax treatment has been preserved for those now trading on Tier 3 of CDNX. The exchange is now reminding investors that Tier 3-listings may not constitute a “qualified investment” for RRSPs, RRIFs and other types of deferred income plans.
Corporations listed on Tier 3 will generally be considered a “private corporation”. However they may also be considered public if:
- they elected in prescribed manner to be a public corporation;
- they been designated by the Minister of National Revenue to be a public corporation; or
- if they previously had shares listed on a prescribed stock exchange.
A slew of advantages and disadvantages flow from this treatment. Among the advantages of retaining private corporation status is are investment tax credits for scientific research and experimental development.
The main disadvantage of private corporation status is that the securities many not constitute qualified investments for registered plans.