Please note: In the following section, the terms “Security Issuer,” “Program Member” and “Account Representative” may be used interchangeably.
Q: How can Common Good Capital help my organization?
A: By giving your investors the opportunity to invest through a Registered Plan, the large pool of capital that prospective investors have already placed in RRSPs or TFSAs with other financial institutions becomes a potential source of capital for your organization. The benefits of the Registered Plans themselves will vary for your investors depending on the Plan type they opt for. Registered Retirement Savings Plans (RRSPs) defer the payment of income tax, which directly benefits investors by reducing their income tax for the year a contribution is made, allowing for pre-tax dollars to be invested by the Account Holder into your organization. Tax-Free Savings Accounts (TFSAs) are able to be withdrawn from at any time without any tax implications. Both types of Registered Plans allow investments to grow in a tax-sheltered environment.
Q: Does our organization have to be a member of the Canadian Worker Cooperative Federation to take advantage of the Registered Plans Program?
A: Yes, only CWCF members are permitted to join Common Good Capital. If your organization is a worker co-op (including a multi-stakeholder co-op with substantial worker control), you can apply for Regular Membership; if it is a different type of co-op or another eligible entity (e.g. Community Economic Development corporation or non-profit organization), you can apply for Associate Membership. Your organization must remain a member in good standing by paying annual Membership Dues in order to continue using CWCF’s Registered Plans Program. Current dues rates are as follows.
– Regular Members: $50 + applicable G/HST for the first two years, after which time the annual dues rate is determined by a sliding scale based on the co-op’s payroll figure for the year
– Associate Members: $100 + applicable G/HST annually
Q: Are co-operative shares and other securities (e.g., community bonds, business corporation shares) eligible investments for Registered Plans?
A: Many types of co-operative securities are eligible investments for a Registered Plan (i.e., an RRSP or TFSA). These qualified investments include common, membership, preferred or investment shares, and in some cases, bonds. Qualified investments also include any type of these shares purchased using patronage allocations. One exception to this eligibility is the membership shares of consumer co-operatives, i.e. shares required for membership in a co-operative that one can reasonably expect to pay a patronage allocation in respect to consumer goods or services. These types of shares are not eligible.
In order to join Common Good Capital, a co-op must generally be a Specified Co-operative Corporation under the Canada Income Tax Act and Regulations, meeting the following requirements:
- Incorporated under a co-op act
- 90% of members are individuals, co-operatives, or corporations or partnerships engaged in farming
- 90% of the shares are held by members
- The co-op holds out the prospect of allocating patronage returns
- None of its members (except other cooperatives) have more than one vote
For more details, see the definition of Specified Co-operative Corporation in Income Tax Regulation section 4901(2), and Income Tax Act section 136(2). To determine whether your shares are RRSP/TFSA-eligible under the Specified Co-operative provisions, your co-operative must have an independent accountant (CA, CMA, or CGA) confirm their eligibility. The accountant must also confirm that each Account Holder, together with related parties, owns less than 10% of the issued shares of any class of the co-operative.
Q: What other types of investments are eligible to be held in Registered Plans administered by CWCF?
A: If a co-operative does not meet the definition of Specified Co-operative Corporation (see previous question), it may be possible for its securities to qualify for RRSP/TFSA eligibility under another section of the Income Tax Act. In that case, a letter of opinion by an independent lawyer or accountant must be deemed acceptable by Common Good Capital’s bare trustee. To date, the only co-operatives which have been eligible to use CWCF’s Registered Plans Program as Non-Specified Co-operatives are some of the renewable energy co-ops in Ontario.
In addition to Specified Co-operative Corporation securities, CWCF is able to hold securities for any Community Economic Development Investment Fund (CEDIF – Nova Scotia) or Community Economic Development Investment Business (CEDB – Prince Edward Island), as each of these provinces have legislation in place deeming such securities as Qualified Investments for Registered Plans.
CWCF is also authorized to hold securities for Community Economic Development Corporations (CEDCs – New Brunswick). Unfortunately, NB does not have the same type of blanket legislation as NS and PEI, so CEDCs must provide an Opinion Letter from an independent lawyer or accountant confirming that the securities are Qualified Investments for the purpose of being held in a Registered Plan, and outlining which specific sections of the Income Tax Act and Regulations this determination has been based upon.
Community Bonds for Non-Profit Organizations (NPOs) may also be held in Common Good Capital’s Registered Plans, with the same requirement that a letter of opinion from an independent lawyer or accountant must be provided and deemed acceptable by our bare trustee.
Q: How does our enterprise determine the Fair Market Value of its securities?
A: This is a very important question, and there is no simple answer. Although most co-ops and similar types of businesses have par value securities, the Fair Market Value (FMV) is the relevant measure used by the Canada Revenue Agency (CRA) to determine the value of the securities being placed inside a Registered Plan. The FMV must be estimated realistically at the time an investor initiates a security-related transaction within a Registered Plan. An ideal way to determine FMV is to have a business appraisal completed. However, we recognize that this can be a costly and impractical undertaking for many Members of Common Good Capital, so we offer the following suggestions to assist you in valuing your securities:
- When an offering is in progress, the sale price of the securities represents the current FMV, assuming the securities are actually being purchased for that price by investors.
- If an audit or similar examination has been conducted, the security value may be determinable by taking all assets and deficits into account. The FMV would be the amount that an investor would receive per security if the issuer were to dissolve and have its proceeds distributed on the day of the valuation.
- Sometimes the last known trade value (either as sold by the issuer or traded privately between investors) can represent the FMV. In the case of a private sale between investors, it must be considered whether both parties were acting reasonably in their best interests to make the market for the purchase/sale of the securities, and that they were acting at arms’ length from each other. This method may be considered appropriate to determine a security’s FMV is if the trade occurred within the last twelve months.
- As a last resort, and under very limited circumstances, FMV may be determined using the Net Book Value. This should only be used if a determination must be made within a finite period and there is no other option available (e.g., a maturing RRSP); otherwise, the transaction should be delayed until an accurate FMV can be determined.
- The simplest way to value your securities may be, in fact, to take the par value. However, if your organization has been operating with substantial losses, you will either have to allocate the losses to the securities to reduce their FMV, or else have a very good justification for claiming their FMV is still their par value.
Q: Who is responsible for determining the Fair Market Value of securities?
A: It is the individual investor’s (i.e., Account Holder’s) responsibility to ensure that securities are being contributed to their Registered Plan at their Fair Market Value (FMV). The Account Holder must ensure that the FMV being reported is accurate. If an Accuont Holder is audited by the Canada Revenue Agency (CRA), they are legally responsible to defend the accuracy of the security valuation. To meet this requirement, the Security Issuer is required to submit a form to Common Good Capital called the Issuer Representation Letter (IRL), which provides the current FMV for one security. Please contact Common Good Capital to request a template for this form.
Q: What are the respective responsibilities of Common Good Capital, the Security Issuer, and the Account Holder under CWCF’s Registered Plans Program?
A: For a full explanation, each Security Issuer (i.e. Program Member / Account Representative) is required to read and sign Common Good Capital’s Agency Agreement, as well as refer to the Support Manual provided to the Designated Representative for the organization. Each Account Holder is required to read the complete Declaration of Trust when completing their account-opening paperwork, as well as read and sign Common Good Capital’s Program Overview & Risk Acknowledgement form. A brief summary of each party’s responsibilities is below.
Common Good Capital will:
- offer its Group Registered Plan services (i.e., Self-Directed RRSPs and Self-Directed TFSAs) to its Members, upon the Members’ acceptance to the Program;
- provide information and updates about the Program, including policies, procedures and paperwork, to the Designated Representative for the Security Issuer;
- provide all required documentation to the Security Issuer in electronic format;
- receive and verify completeness of paperwork submitted by or on behalf of Account Holders; and
- carry out all required administration of the Registered Plans, including processing transactions, issuing tax receipts to Account Holders as necessary, providing annual statements to Account Holders, maintaining the accounting records for the Plans, and filing all requisite reports with the Canada Revenue Agency (CRA).
The Security Issuer will:
- read, sign and abide by the terms of its Agency Agreement with Common Good Capital;
- remain a member in good standing by paying annual membership dues to CWCF;
- provide its investors with the most current versions of all required documentation and assist them with completing them as necessary;
- verify the completeness and accuracy of paperwork before forwarding it to Common Good Capital for processing, referring to the Support Manual to ensure compliance with all requirements; and
- confirm the Fair Market Value (FMV) of the Issuer’s securities as necessary for applicable transactions, or as otherwise requested by Common Good Capital.
The Account Holder will:
- complete all paperwork required to open a Registered Plan, with assistance from the Account Representative (i.e., Security Issuer) as necessary;
- ensure Common Good Capital is updated if their contact information changes;
- notify Common Good Capital immediately of any inaccuracies on official tax slips, receipts, and/or account statements;
- provide an accurate FMV to Common Good Capital if requested; and
- pay any and all fees levied on their account either directly to Common Good Capital or to their Account Representative, as arranged at the time the account is opened.
Q: What is the deadline for the Security Issuer to return documentation, funds or certificates to the CWCF?
A: Each time an investor applies to open, or makes a contribution to, a Self-Directed RRSP or TFSA, the Security Issuer must remit the funds and applicable paperwork to Common Good Capital within thirty (30) days of receipt for deposit to the account. Subsequently, the Security Issuer must provide to Common Good Capital, within sixty (60) days of receipt of funds intended for the purchase of securities, the corresponding Certificate or Register Confirmation Letter for said purchase.
The Canada Revenue Agency’s (CRA’s) deadline for RRSP contributions for a given tax year is typically the 60th day of the following calendar year. In the event that day falls on a weekend, the deadline will be extended to the next business day. It is important to ensure that all contribution funds and paperwork are received by Common Good Capital on or before this deadline. Please note that due to our office’s rural location, “overnight delivery” can sometimes take 2-3 business days to reach us. If you have concerns about being able to get all required documents to us by the contribution deadline, please reach out as early in the new year as possible so that we can discuss possible alternate arrangements.
Q: Are member loans in a co-op a Qualified Investment for a Registered Plan?
A: They can be, but only if there are more than 100 members in the co-op and certain other conditions are met as well. If you want to take advantage of the Registered Plan provisions, in most cases you will need to convert your loans into shares.