By the end of this year, New Brunswick residents will be able to invest in community economic development corporations (CEDCs), which support the development of small businesses and local organizations while providing investors with significant tax breaks.
There’s widespread interest in CEDCs, says Wendy Keats, executive director of the Co-operative Enterprise Council of New Brunswick in Salisbury, N.B.: “We have been inundated with calls.”
The CEDC model, which is getting the final stamp of approval from the provincial Department of Finance and the Financial and Consumer Services Commission (FCNB), will offer investors in approved companies and associations a 50% non-refundable New Brunswick income tax credit on their investment, which subsequently cannot be touched for four years.
Companies and organizations looking to raise capital will fall into one of two groups: those looking to raise between $10,000 and $250,000; and those seeking between $250,000 and $3 million.
For the new program to launch, amendments must be made to the Small Business Investor Tax Credit Act and the New Brunswick Income Tax Act. As well, the FCNB must release final disclosure regulations. The deadline for comments to the draft disclosure regulations ended Oct. 8, and comments are being reviewed. The FCNB has posted the draft capital-raising rules for the program, and the closing date for public comments is Nov. 10.
“The intention is to get this [legislation] through as fast as possible,” Keats says. “The [FCNB fore]sees no roadblocks.”
Although CEDCs will be new to New Brunswick, the model is used in Nova Scotia and Prince Edward Island, where the concept more commonly is known as a community economic development investment fund (CEDIF).
CEDIFs are pools of capital formed through the sale of shares or units to people within a community; these pools are designed to provide greater access to capital for social enterprises and co-operative associations in particular.
CEDIFs can focus on developing many businesses within a community, such as farms or food producers; or on a larger, specific investment, such as a processing facility for local products. The Nova Scotia Equity Tax Credit encourages local residents to invest in small businesses by providing a personal tax credit of 35%.
Launched in 1999, Nova Scotia’s CEDIF program has proven to be successful. To date, there have been 48 CEDIFs established involving 7,500 investors with total assets valued at more than $56 million. The model also has been adopted in P.E.I., and Manitoba, for one, has expressed interest.
“[The CEDIF] is a specialized, unique tool that supports community development,” says Chris Brown, senior advisor with the Nova Scotia Department of Business. “There is an opportunity for other provinces to benefit from this [concept].”
CEDIFs such as New Dawn Enterprises Ltd., the oldest such corporation in Canada, often pay dividends to investors. Sydney, N.S.-based New Dawn became part of Nova Scotia’s CEDIF program in 2004 and has been paying dividends since 2006. That firm has issued a total of $787,000 in dividend payments, averaging 3%-4.3% annually.
Co-ops in New Brunswick are particularly interested in the CEDC model, Keats notes, although there are legislative wrinkles that need to be ironed out. Under existing legislation, co-ops cannot issue investment shares like CEDCs. New co-ops will be exempt from this restriction, but existing co-ops may have to set up a new arm of their operations to be compliant – and it’s likely they will, she says.
Unlike most investment funds, CEDCs do not require an investment fund portfolio manager – an anomaly the FCNB is requiring community corporations and associations to note in bold type in their offering documents. Other funds are required to have registered investment managers to afford investors a level of protection that’s not present in a CEDC.
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