Employee Investment Funds allow companies to establish an employee ownership program. Employees can invest in an LSVCC fund, which in turn invests into the company where they work.
Employees who invest in the fund receive a 35% tax credit (20%* provincial and 15% federal) on the first $5,000 they contribute each year. You must hold the investment for a minimum of eight years or you will be required to repay the tax credits. Investments are RRSP eligible.
*For the 2018 and subsequent tax years, the provincial tax credit will be reduced to 17.5%.
In addition to tax credits, employee ownership gives employees an opportunity to own a piece of the company where they work and share in its success. For businesses, the program can provide equity capital needed for expansion, and can also be beneficial for recruitment, retention and succession planning.
Companies must be corporations or co-operatives, with between five and 500 employees who reside in Saskatchewan and at least 25% of salaries being paid to Saskatchewan residents.
In order to create an LSVCC fund under this program, there must be at least five employees willing to establish the fund. As well, the employer must be willing to sell a portion of the business to the employees.
How to Set up an Employee Investment Fund
- Contact the Ministry of the Economy for information.
- Confirm employer is willing to consider an employee ownership program.
- Employees select a project coordinator (any individual, organization or professional contracted to perform the role). Other professionals such as lawyers and accountants may be requested by the co-ordinator to assist with any specialized requirements.
- Develop a brief proposal and send to the Ministry of the Economy to determine eligibility. The Ministry of the Economy will provide a Procedures Kit at this time.
- Follow the requirements of The Saskatchewan Financial Services Commission (GRO 45-902).
- Present the proposal to employees (do not raise any funds at this time). The Ministry of the Economy can assist you with the information and presentation.
- If employees and the employer wish to proceed, follow the steps outlined in the procedures kit.
- Establish an incorporated employee-controlled investment fund and apply to the Ministry of the Economy for registration.
- If the fund is approved, the Ministry of the Economy will provide a formal letter of approval and certificate of registration.
- Raise money through the sale of shares to employees (not to exceed $5 million). The fund must provide equal opportunity for all employees to purchase shares.
- Invest the capital into the employer’s businesses within six months of selling any shares.
- These equity shares are participating and voting, and all shareholders share in the proceeds upon dissolution of the fund.