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Ontario Adds 5% Credit for Research Funds

Certain LSIF funds qualify for an extra 5% tax credit for Ontario Investors.  See the particular fund information for details.

Grace Period Rule Change (2001) Concerning Labour Sponsored Funds

You do not need to wait until the exact 5-year anniversary to place sell orders for maturing LSIF shares.

LSIF shares maturing on March 1^st 2001 may be redeemed on or after February 1^st, 2001 without repayment of the tax credits. (The Deferred Sales Charge - generally 2.25% to 3% - still applies.)

Both the Federal government and the Ontario provincial government have announced legislative amendments which deem redemptions of LSIF shares made during the month of February 2001 or on March 1, 2001 to have been made 30 days later.

Please note that this information has been compiled as of February 2000, from information provided by the labour funds. ScotiaMcLeod does not provide tax or accounting advice. If you have further questions, please consult your labour fund directly, Canada Customs and Revenue, or a tax expert.

Rule Changes (1996 & 1998) Concerning Labour Sponsored Funds

The key elements of the 1996 and 1998 rule changes concerning LSIFs are:

1. The federal tax credit is reduced from 20% to 15% for shares of LSIFs purchased after March 5, 1996. Starting in the 1997 taxation year, the rate of the federal credit is the lesser of 15% and the rate of the provincial tax credit. The federal government will maintain a minimum 15% tax credit for investments in federally registered LSIFs, regardless of the rate of the provincial credit.
   
2. In 1998, the maximum annual investment eligible for a tax credit was increased from $3,500 to $5,000 per individual for shares purchased in 1998 and proceeding tax years.
   
3. The period during which a shareholder may not redeem shares without repayment of the federal tax credit is increased from 5 years to 8 years for shares purchased after March 5, 1996. This same period will now apply equally to all shareholders including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.
   
4. Prior to August 31, 1998, shareholders redeeming shares of an LSIF could not claim a federal tax credit for the purchase of shares of any LSIF during the taxation year in which the redemption occured and for the next two taxation years, otherwise known as the "cooling-off" period. On August 31,1998, the federal government announced the elimination of the "cooling-off" period, allowing any shareholders to redeem their shares and immediately re-invest in LSIF shares and receive a federal tax credit.

Provincial Rule Changes

Ontario: The tax credit is reduced from 20% to 15% for shares of LSIFs purchased after May 6, 1996. The maximum annual investment eligible for a provincial tax credit is increased from $3,500 to $5,000 per individual for shares purchased in 1998 and proceeding tax years. The period during which a shareholder may not redeem shares without repayment of the federal tax credit is increased from 5 years to 8 years for shares purchased after May 6, 1996. This same period will now apply equally to all shareholders including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.

Nova Scotia: The tax credit is reduced from 20% to 15% for shares of LSIFs purchased after April 25, 1996, on investments up to $3,500. The period during which a shareholder may not redeem shares without repayment of the federal tax credit is increased from 5 years to 8 years for shares purchased after April 25, 1996. This same period will now apply equally to all shareholders including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.

Saskatchewan: Individuals who purchase Class A Shares are eligible for a 15% Saskatchewan tax credit on investments of up to $3,500. The period during which a shareholder may not redeem shares without repayment of the federal tax credit is increased from 5 years to 8 years for shares purchased after March 5, 1996. This same period will now apply equally to all shareholders including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.

New Brunswick: The tax credit is reduced from 20% to 15% for shares of LSIFS purchased after March 5, 1996 on investments up to $5,000. The maximum annual investment eligible for a tax credit is increased from $3,500 to $5,000 per individual for shares purchased in 1998 and proceeding tax years. The period during which a shareholder may not redeem shares without repayment of the federal tax credit is increased from 5 years to 8 years for shares purchased after March 5, 1996. This same period will now apply equally to all shareholders including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.

Prince Edward Island: The provincial government, in its budget of April 8, 1997, announced a temporary moratorium on the granting of provincial tax credits for new money invested by residents in any labour sponsored fund. It is our understanding that the moratorium may be lifted, even on a fund by fund basis, once the government is satisfied by a fund's venture investment progress. For now, a federal tax credit of 15% on a maximum purchase of $3,500 is still available to residents who purchase a labour sponsored fund.

Redemptions

Your labour fund should be considered a long term investment, however an investor may redeem their LSIF shares subject to certain conditions:
for shares purchased up to March 5, 1996, redeeming within 5 years of purchase requires the return of the tax credits to the federal and provincial governments (some exemptions apply).
The period during which a shareholder may not redeem shares without repayment of the federal tax credit is now 8 years for shares purchased after March 5, 1996 and this same period will now apply equally to all shareholders, including individuals retiring, reaching the age of 65, or ceasing to be residents of Canada.

On August 31,1998, the federal government announced the elimination of the "cooling-off" period, allowing any shareholders to redeem their shares and immediately re-invest in LSIF shares and receive a federal tax credit.

Some LSIFs may restrict total redemptions to 20% of total assets in any one year and a fee of 3/4 of 1% of redemption value will be charged upon redemption for each year shares are held short of 8 years.

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