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CEDIFs – a local investment option for your RRSP

Special guest post by Kevin Redden, Director of Corporate Finance at the Nova Scotia Securities Commission.

A CEDIF, or Community Economic Development Investment Fund, is an investment fund designed to encourage investment in Nova Scotia by Nova Scotians.

Investing in CEDIFs may qualify the investor for a 35 per cent provincial non-refundable income tax credit, making them an attractive investment for many Nova Scotians. Along with this possible tax benefit, there is also the satisfaction of investing in and supporting local communities. CEDIFs are also eligible investments for Self-directed RRSP accounts, which comes with an additional tax benefit.

On the other hand CEDIF’s are very speculative, high risk investments with very little liquidity and no available market value. Investors have no right to demand that the CEDIF or anyone else buy their shares back from them or to buy them at any particular price. So when investors want their money back they must rely primarily upon the willingness and ability of the CEDIF to buy their shares at a price which will be set by the CEDIF.

For those of you considering a CEDIF investment, we have attempted to briefly describe what they are, and how they work.

Sales of shares in CEDIF’s are exempt from the requirements to file a prospectus with the Nova Scotia Securities Commission, and for sellers of CEDIFs are not required to be registered with the NSSC.

CEDIFs must file an Offering Document with the Commission, and after staff signify in writing that they do not object to the CEDIF selling shares, they can and must give a copy of the Offering Document to each potential purchaser.  The Offering Document will disclose to readers useful and important information about the offering of shares. For example the Offering Document will disclose among other things:

  1. 1. How much each share will cost and the minimum amount an individual must invest and any commissions being paid.
  2. 2. Who can sell shares.
  3. 3. What the CEDIF will do with the money raised, what the risks are or what happens if the CEDIF does not raise the required minimum amount.
  4. 4. The history and track record for the CEDIF.
  5. 5. The people working on the CEDIF as promoters, officers and directors and the potential conflicts of interest between promoters, officers and directors and the CEDIF.
  6. 6. The restrictions on reselling the shares.
  7. 7. The most recent financial statements for the CEDIF.

At the same time as Staff of the NSSC are checking the CEDIF for compliance with the Securities Legislation, the Nova Scotia Department of Finance is checking for compliance with the Equity Tax Credit Act.   If the Department of Finance is satisfied, they will issue an Equity Tax Credit Certificate to the CEDIF. After the sale of shares is completed the CEDIF will provide the Department of Finance with information on the purchasers and the Department will send Equity Tax Credit receipts to investors for 35 per cent of the amount they invested.

These amounts are non-refundable income tax credits against provincial income taxes payable and are entered on form NS 428 of the income tax return. If an investor sells their shares before a five year hold period expires they must repay the tax credit. The Canada Revenue Agency recovers this money on behalf of the Province.

CEDIF shares can be held in Self Directed Registered Retirement Savings Plans (RRSPs) , though the annual fees involved in self directed RRSPs makes small investments uneconomical.

This is not intended to be a full description of CEDIF’s or the implications and risks of investing in CEDIFs. Potential investors are advised to consult with their financial advisor prior to investing.

For further information on CEDIF’s please see:

http://www.gov.ns.ca/nssc/corporatefinance/cedif.htm

http://www.gov.ns.ca/econ/cedif/ http://www.gov.ns.ca/finance/en/home/taxation/personalincometax/equitytaxcredit/default.aspx

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