CEDIFs: Nova Scotia's Community-Based Capital Pools
December 8, 2011
By Jeffrey Hoyt, at McInnes Cooper
The Community Economic Development Investment Fund (“CEDIF”) is a unique vehicle for promoting local economic development in Nova Scotia.
A CEDIF is a pool of money raised through the sale of securities to persons within a defined Nova Scotia community – be it geographic, cultural, or otherwise – to operate or invest in local business. CEDIFs can attract investment through direct community solicitation, can assist and develop businesses within the community, and are eligible holdings for self-directed RRSPs.
CEDIF shares are eligible for the Nova Scotia Equity Tax Credit (“ETC”). The ETC allows Nova Scotia investors in a CEDIF to claim a 35% tax credit for purchased shares, so long as the shares are held for five years, as well as an additional 20% credit for shares held for at least 10 years and another 10% credit if held for at least 15 years.
CEDIFs raise capital by issuing a prescribed offering document, (the “Offering Document”), which provides disclosure about the CEDIF and the proposed offering. Offering Documents are subject to review by the Nova Scotia Securities Commission (“NSSC”) – when the NSSC is satisfied with the disclosure in an Offering Document, it will issue a letter of non-objection. The CEDIF may sell shares within 90 days of the date of the non-objection letter.
A CEDIF does not need to meet a minimum amount threshold in order to close an issue. However, in our experience the effective minimum size of an offering is at least $100,000. The maximum amount that a CEDIF may raise in each offering is $3,000,000. A CEDIF must have at least 25 investors for its initial offering and at least three investors for each subsequent offering.
Thanks in part to their favourable tax and capital raising benefits, CEDIFs continue to represent a growth vehicle for economic development in Nova Scotia. As of March 31, 2011, nearly 50 CEDIFs had successfully closed at least one offering, attracting more than 5,600 Nova Scotian investors at a value approaching $40 million in total offering assets. As interest in the program continues to grow, it is expected that offerings conducted by new CEDIFs, as well as additional offerings by existing CEDIFs, will demonstrate the continued success of the program.
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