DEFINITION of 'Stock Savings Plan'

In Canada, a plan wherein certain provinces (such as Alberta, Ontario and Quebec) provide tax credits for provincial income taxes to residents who purchase certain investments, in particular the initial public offerings (IPOs) of local companies. Stock savings plans provide tax benefits to Canadian residents and are intended to encourage middle and high level income earners, to invest in the provincial economy, by financing the establishment or growth phases of local businesses.

BREAKING DOWN 'Stock Savings Plan'

While Stock Savings Plans have been implemented in a number of countries, the largest number of such savings plan exist in Canada, in provinces such as Alberta, Ontario and Quebec. And Each Canadian province has its own unique stock savings plan. The Quebec Stock Savings Plan (QSSP), for example, launched in the year 1979, is the plan for the Canadian province of Quebec. This particular plan provides tax benefits to Quebec residents who buy new issues of stock from local Quebec companies. In March 2012, stocks of Nemaska Lithium, an exploration and development company in Quebec's James Bay Region, were listed as "valid shares" and qualified for the province's stock savings plan. Another marquis Canadian Stock Savings plan is The Alberta Stock Savings Plan (ASSP)—a program that went live, effective February 1, 1986.

How Stock Savings Plans work

Generally speaking, a Stock Savings Plans participant may allocate up to 10% of his or her earnings to the purchase of a company's stock. Interested investors should first contact a qualified investment dealer to make sure they are eligible to contribute to the program. If so, the dealer would arrange a plan in the investor's name and secure eligible shares on the investor's behalf. That dealer would be responsible for maintaining the account, recording all transactions, and providing investors with annual statements that would report items such as acquisition costs, the maximum potential tax credit amount of eligible shares purchased, and the disposition cost amount of all eligible shares withdrawn from a plan during the year.

Stock Savings Plan participants may only invest in “eligible shares” of corporations, which must acquire Certificate of Eligibility. A corporation may obtain such documentation by applying to its corresponding Provincial Treasurer, and proving that it satisfies a certain set of criteria—chief among them: that the corporation has assets of less than $ 200 million. If a certificate is granted, it will classify the corporation as either an “emerging”, “mature” or “expanding” company, depending on its current assets and revenue profile.

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