Canada: SME Growth Stock Plan Revamped: Quebec Stock Savings Plan II

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Corporate Finance & Securities Regulation, March 2009

In its 2009-2010 budget (the Budget) tabled on March 19, 2009, the Quebec government announced that it would revamp and enhance the SME Growth Stock Plan (SME Growth Plan), rechristened the Quebec Stock Savings Plan II (QSSP II), in an effort to stimulate investment in Quebec-based companies by providing greater income tax incentives to investors.

Among the changes highlighted in the Budget, the asset-value threshold of corporations whose shares qualify for inclusion under the plan (Qualified Issuing Corporations) has been increased, the minimum hold period in respect of Qualifying Shares and Qualifying Securities (as hereinafter defined) has been reduced, the process for registering replacement shares as Valid Shares (as hereinafter defined) under the QSSP II has been streamlined, and the tax benefits to investors in Qualified Issuing Corporations has been increased temporarily.


The QSSP II is the successor to the SME Growth Plan introduced by the Quebec government in 2005. Under the SME Growth Plan, a resident of Quebec may deduct from his taxable income for the year the adjusted cost of a Qualifying Share or a Qualifying Security acquired during such year, provided it is included in his/her SME Growth Plan by no later than January 31 of the following year, with the entire taxable income subject to a maximum deduction of 10% of the individual's total income for the year.

Three categories of securities are qualified for investment under the SME Growth Plan: (i) non-redeemable common shares with full voting rights and no fixed dividend, acquired for cash as part of a public offering by a Qualified Issuing Corporation under the SME Growth Plan (Qualifying Shares); (ii) securities issued by an investment fund that makes investments in Qualifying Shares that are acquired for cash by an initial purchaser (Qualifying Securities); and (iii) for transactions intended to replace Qualifying Shares or Qualifying Securities withdrawn from the SME Growth Plan (Covering Transactions), common shares acquired on the secondary market that, had they been issued under the SME Growth Plan, would be Qualifying Shares (Valid Shares).

In order to obtain the status of a Qualified Issuing Corporation pursuant to the SME Growth Plan, a corporation must generally satisfy the following conditions on the date of issuance of the final prospectus receipt by the Quebec securities regulatory authority, Autorité des marchés financiers (AMF), in connection with the distribution or, if applicable, on the date of reliance on any prospectus filing exemption:

(i) the corporation must be a Canadian corporation whose assets aggregate less than C$100-million;

(ii) the corporation's central management must be situated in Quebec, and more than one-half of the wages paid by the corporation in the course of its last taxation year must have been to employees of an establishment located in Quebec;

(iii) throughout the preceding 12 months, the corporation must have carried on a business and had at least five full-time employees, none of whom are insiders or persons related to insiders; and

(iv) a maximum of 50% of the value of the corporation's assets must consist of investments other than certain investments prescribed by law.

The SME Growth Plan was scheduled to terminate on December 31, 2009.


For the purpose of calculating the asset-value threshold in determining whether a corporation is a Qualified Issuing Corporation, a corporation must include, in addition to those assets shown in its financial statements for the year preceding the offering of Qualifying Shares, the assets of any other corporation with which it is associated, on a worldwide basis, at any time during the 12 months preceding the time of the offering of Qualifying Shares, less any borrowing, brokerage, custody and other similar expenses associated therewith.

Under the QSSP II, the asset-value threshold of a Qualified Issuing Corporation is increased from C$100- million to C$200-million.This amendment applies in connection with a public offering of Qualifying Shares for which a final prospectus receipt, or prospectus filing exemption, as the case may be, is granted or relied upon after March 19, 2009. The increased asset value threshold will also apply in respect of a Valid Share registration application made after March 19, 2009.


In order to preserve the tax benefit relating to the purchase of Qualifying Shares or Qualifying Securities included in an SME Growth Plan, investors are required to hold Qualifying Shares or Qualifying Securities in their SME Growth Plan having a total adjusted cost that is at least equivalent to the amount of the deductions they claim under the SME Growth Plan for the three years following the acquisition thereof (Minimum Hold Period). Generally, if a Qualifying Share or Qualifying Security is withdrawn from the SME Growth Plan, an investor may continue to satisfy the Minimum Hold Period by purchasing a Valid Share in a Covering Transaction.

In an effort to render an investment in Qualifying Shares and Qualifying Securities issued under the QSSP II more attractive to investors, the Minimum Hold Period has been reduced from three years to two years. As a result, investors will satisfy the Minimum Hold Period requirement under the QSSP II where they hold in their QSSP II plan, on December 31 of the year of acquisition of Qualifying Shares or Qualifying Securities as well as on December 31 of the two following years, Qualifying Shares, Valid Shares or Qualifying Securities, the total adjusted cost of which is at least equivalent to the amount of deductions claimed under the SME Growth Plan over the preceding two taxation years.

This amendment applies as of January 1, 2009.


To satisfy the Minimum Hold Period obligations and ensure permanent coverage in an SME Growth Plan, an SME Growth Plan investor could purchase a Valid Share on the secondary market to replace a Qualifying Share or Qualifying Security withdrawn from the SME Growth Plan. A list of Valid Shares is published weekly by the AMF (AMF List).

The AMF List includes the names of the Qualified Issuing Corporations that have made an SME Growth Plan offering over the preceding four years. A corporation that has not made a public offering under the SME Growth Plan may apply for registration with Revenu Québec as a Qualified Issuing Corporation by requesting an advance ruling in order to be included on the AMF List. The advance ruling will confirm that the corporation's capital stock includes a class of shares listed on a stock exchange in Canada that satisfies the criteria for being Qualifying Shares and that at the time of the request, the corporation satisfies the criteria for being a Qualified Issuing Corporation.

The QSSP II seeks to streamline the process for such registration as a Qualified Issuing Corporation by replacing the current cumbersome and complex advance ruling application procedure with an application to Revenu Québec on a prescribed form. The prescribed form must be signed by a director of the corporation certifying that the corporation meets the conditions required to qualify as a Qualified Issuing Corporation. The prescribed form must be accompanied by a description of the corporation's capital stock as well as its consolidated and non-consolidated financial statements.

The foregoing streamlined procedure for inclusion on the AMF List will apply with respect to applications submitted after June 30, 2009.


The adjusted cost of a Qualifying Share, a Valid Share or a Qualifying Security represents the amount that must be used to determine the tax benefit relating to the SME Growth Plan and for the satisfaction of the Minimum Hold Period requirement.

Normally, the adjusted cost of a Qualifying Share or a Valid Share, for an individual or an investment fund, is equal to 100% of the cost of such share. However, the QSSP II provides that such adjusted cost will be increased temporarily to 150% of the cost of such share. Such increase will apply with respect to Qualifying Shares and Valid Shares acquired after March 19, 2009, and before January 1, 2011, and included in the QSSP II plan by no later than January 31 of the year following their acquisition. Qualifying Shares and Valid Shares acquired after December 31, 2010, and before January 1, 2015 will be subject to the 100% rate.


Finally, the QSSP II will apply for a period of five years, ending on December 31, 2014, thereby extending the December 31, 2009 expiry date that was otherwise contemplated for the SME Growth Plan.


  • 2009-2010 Quebec Budget revamps the SME Growth Stock Plan, dubbed the Quebec Stock Savings Plan II (the QSSP II).
  • Tax benefit of acquiring a Qualifying Share or Qualifying Security is temporarily increased from 100% to 150% of the adjusted cost of such security.
  • Asset-value threshold of Qualified Issuing Corporations is increased from C$100-million to C$200-million.
  • Minimum hold period in respect of Qualifying Shares and Qualifying Securities is reduced from three years to two years.
  • Process for corporations to qualify Valid Shares for inclusion in the QSSP II is simplified and streamlined

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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