Alberta Stock Savings Plan

From: Canada Revenue Agency

IC

ALBERTA STOCK SAVINGS PLAN

87-3 May 8, 1987

1. The Alberta Stock Savings Plan (ASSP) Program became effective February 1, 1986. Individual investors may claim ASSP tax credits on their personal income tax returns for 1986 and subsequent years.

Definition of the Alberta Stock Savings Plan

2. The Alberta Stock Savings Plan is an arrangement between an individual and a qualified dealer, whereby the dealer will receive and hold eligible shares purchased by the investor for an ASSP. The investor is entitled to a tax credit against Alberta tax payable for investing in such shares.

3. A qualified dealer is a person who is registered under the Alberta Securities Act, is a member of the Alberta Stock Exchange and has a permanent establishment in Alberta.

Share Eligibility

4. A share is eligible for an ASSP if it is issued by an eligible corporation as part of a share issue for which a Certificate of Eligibility has been issued and has not been revoked. A corporation with a permanent establishment in Alberta may receive a Certificate by applying to the Provincial Treasurer and satisfying the Treasurer that both the Corporation and the share issue it proposes meet various criteria. A Certificate will include a classification of the corporation as an emerging, expanding or mature corporation, the classification being dependent on the assets and revenues of the corporation.

5. The investor must acquire the eligible shares in the primary market as the first purchaser. It is necessary that the shares be remitted directly to the qualified dealer who administers the investor's ASSP, either by the issuing corporation or by another qualified dealer. If, instead of having the shares deposited directly to an ASSP, the investor were to take possession of them, the shares would be rendered ineligible for ASSP tax credits. It is essential, therefore, that the share certificate be held since issuance by a qualified dealer, or it must be issued and registered by the corporation to a qualified dealer or designate.

6. There is a general prohibition on shares being eligible for an ASSP if they already qualify for other government grants or tax credits, for example:

(a) a grant under the Small Business Equity Corporations Act (Alberta),

(b) a share-purchase tax credit, or

(c) a scientific research and development tax credit.

7. Shares will not qualify for an ASSP if they were acquired pursuant to a dividend reinvestment plan or an employee stock purchase plan. Shares acquired as a stock dividend will not qualify for an ASSP.

8. Shares must be acquired on or before December 31, 1989 to qualify for an ASSP, with the exception being made for shares which meet prescribed conditions and which are acquired simply to replace withdrawn shares.

Claimant Eligibility

9. To qualify for an ASSP tax credit, the claimant must be an individual who resided in Alberta on the last day of the taxation year, and who purchased the eligible shares and designated them for an ASSP. A trust or corporation is ineligible to claim an ASSP tax credit.

10. If an eligible investor was not dealing at arm's length with the corporation at any time during the 12 months preceding the date the investor acquired eligible shares of the corporation, those shares will not be eligible for an ASSP tax credit.

Initiating an ASSP

11. An investor should contact a qualified investment dealer and obtain information concerning share issues that are eligible under the ASSP program. The dealer can arrange an ASSP in the investor's name and acquire eligible shares on the investor's behalf. The dealer will record the shares in an ASSP account in the investor's name, maintain the account, record all transactions, and provide an annual Statement of Investment. The Statement of Investment will report the "acquisition cost amount" (Maximum potential tax credit amount) of all eligible shares purchased and contributed to a stock savings plan during the year, and the "disposition cost amount" of all eligible shares withdrawn from a plan during the year. The definitions of "acquisition cost amount" and "disposition cost amount" are given in 12 to 15 below.

Acquisition Cost Amount/Disposition Cost Amount

12. The "acquisition cost amount" of a share is the product of its "cost amount" and the "eligible percentage" applicable to the share issue. The "cost amount" of a share includes underwriters' fees but excludes brokerage fees, custody fees or similar charges. If an eligible share/warrant unit is purchased, the entire cost of acquisition is attributable to the share and its cost amount is not affected by a subsequent disposition of the warrant(s). On the other hand, if a warrant is exercised to acquire an eligible share, the cost of the warrant is not included in the cost amount of the share.

13. If a share is acquired for consideration other than cash or warrants, the cost amount of the share is the fair market value of the consideration surrendered for the share itself, net of brokerage or similar charges.

14. The "eligible percentages" will vary depending on the classification of the issuing eligible corporation. The classifications and related percentages are: Corporation Eligible Classification Percentage

Emerging Corporation 30% Expanding Corporation 15% Mature Corporation 10%

15. The "disposition cost amount" of an eligible share which is contributed to a stock savings plan is its acquisition cost amount. If the same type and class of eligible shares of an eligible corporation were acquired by an eligible investor at different acquisition costs and contributed to a stock savings plan, the "disposition cost amount" will be an amount determined by a reasonable method, applied consistently to all such shares.

Determination of ASSP Tax Credit

16. The tax credit earned is the lesser of:

(a) acquisition cost amount of shares purchased and contributed to the stock savings plan, and

(b) $3,000

17. Eligible shares must be maintained in an ASSP for two calendar years (January 1 to December 31) following the year of purchase. Shares may be withdrawn from the Plan prior to the expiry of the two-year period providing they are replaced by other eligible shares which have at least the same tax credit value. If shares are withdrawn and not replaced, the credit earned for their purchase is disallowed and, if it has already been claimed, it will be subject to recapture.

18. If the Alberta tax otherwise payable is less than the tax credit earned, the claimant is permitted to carry forward the difference. There is no provision for a carry-back to a previous taxation year.

19. For 1987 and subsequent taxation years, a claimant will have to take into consideration any carry-forward of unused credits and any recaptures of credits previously received.

20. There is no limit to the number of Plans which an investor may have with qualified dealers. The claimant must aggregate all Plans in determining the tax credit and is limited to a maximum credit of $3,000 in respect of a particular taxation year. If a claimant has contributed more shares to an ASSP than necessary to accumulate a $3,000 tax credit in a particular taxation year, the excess amount cannot be carried forward. However, if an investor later disposes of eligible shares, the disposition will be assumed to have been from the excess of eligible shares first, so as not to reduce the ASSP tax credit unnecessarily.

21. If shares are withdrawn from an ASSP before they have been retained for two full calendar years, a recapture of the ASSP tax credit claimed in respect of the disposed shares would ordinarily occur. This recapture may be avoided, however, by replacing the withdrawn shares with other eligible shares which have a tax-credit value equal to that of the withdrawn shares. Since these replacement shares are necessary to prevent a recapture of tax credits previously claimed, they will not entitle the investor to further credits.

22. The transfer of eligible shares to an RRSP is considered to be a withdrawal of shares from the ASSP. Recapture may occur if replacement shares are not acquired by the claimant.

Claiming the ASSP Tax Credit

23. To receive an ASSP tax credit, a claim on form T89 must be filed by the claimant with the personal income tax return or within the 90-day period for objection. The claim must be supported by a Statement of Investment for each Plan in which designated eligible shares are held. These statements are provided by the investment dealers on or before March 1st of each year, showing summary data relating to the Plans for the preceding calendar year.

Transferring or Terminating an ASSP

24. An investor can direct an investment dealer to transfer shares from one plan to another. The investor must not take custody of the shares being transferred; otherwise, the investor will be considered to have withdrawn the shares from the first plan and the shares will not be eligible for deposit in another Plan. As discussed in 17 above, the withdrawal of shares before the expiry of the 2-year retention period may result in disallowance or recapture of a tax credit.

25. After the expiry of the 2-year retention period, shares may be withdrawn from an ASSP without being replaced. At that point, the investor can deal with the shares as with any other shares. Disposition will result in a capital gain or loss.

Other Items

26. Dividends received on shares held in an ASSP do not affect the amount of the tax credit entitlement. Dividends will receive the normal tax treatment for such income.

27. Share value fluctuations during the period they are held in an ASSP do not affect the ASSP entitlement. The ASSP tax credit will not reduce the adjusted cost base of the shares and, therefore, will not increase any capital gain realized on disposition. A loss on disposition of these designated shares will, however, be reduced by the ASSP tax credit received in respect of these shares.

28. In the event of the death of a holder of an ASSP, dispositions from the plan which are consequential to the death are deemed not to be a disposition for purposes of the Income Tax Act. In consequence, there will be no recapture of tax credits claimed previously in respect f the shares so disposed of. In the event that the shares in question had been acquired within the year but prior to death, a credit may be claimed in respect of the shares for the year of death. Any dispositions of shares occurring prior to death will be subject to possible recapture in the normal manner.

29. If the Provincial Treasurer revokes or amends a Certificate of Eligibility, any amounts to be recovered with respect to overstated ASSP tax credits will be recovered from the corporation that issued the shares. Any shares acquired by an investor for which the Certificate of Eligibility is later revoked, will still qualify for an ASSP tax credit. The purchase and designation of shares to an ASSP must occur prior to the Certificate revocation in order for the shares to qualify for the ASSP tax credit.

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