Ontario, Canada Summary
|Fund Structure||Limited Partnership|
|Cost||$210 for the initial registration fee and renewal fee|
$360 late renewal fee
Formation can become costly depending on the law firm or tax advisor engaged
|Timing||Immediate turn-around if filed in person|
~20 business days if filed by mail
|Fund Marketing||Funds offering securities to the public in Ontario are required to file a prospectus with the OSC. Once the fund becomes a reporting issuer, there are ongoing reporting obligations. In some instances a fund may not be required to file a prospectus with the OSC.|
|Tax Treatment||Limited Partnerships are tax transparent so capital gains flow through to the underlying investors. Residents are subject to tax. Non-residents are not subject to withholding tax on profits.|
|Canadian Venture Capital & Private Equity Association||https://www.cvca.ca/|
Ontario, Canada Overview
The venture capital ecosystem in Canada is growing and since 2013 more than CAD$185B has been invested in over 4000 Canadian companies. Q1 2021 was the strongest quarter on record with CAD$2.7B invested across the following sectors: information, communications, and technology (ICT), life sciences, and clean tech. VC activity is centered in urban areas that also have strong tech sectors, however this report will focus on Ontario as Ontario has the majority of registered venture funds compared to the other provinces. Funds formed in Ontario are mostly structured as limited partnerships. Gains and losses flow through to underlying owners. Fund managers can opt for a fully Canadian fund structure or a hybrid structure if they are located outside of Canada.
The benefits of domiciling a fund in Ontario include effective and efficient tax codes, reliable government, and a growing startup ecosystem. In addition, compared to jurisdictions like the Cayman Islands, Ontario has less onerous KYC requirements for investors. Anecdotally, there is an interest from fund managers in LatAm in forming their funds in Ontario given the business friendly regulations and that investors are comfortable investing in a Canadian domiciled fund (i.e. there are no reputational concerns as with Cayman funds).
Fund offerings made to the public in Ontario require that the fund’s prospectus be registered with the Ontario Securities Commission (OSC) however, venture capital funds may be able to rely on exemptions that preclude them from government registration. VC funds typically rely on the accredited investor exemption and the minimum amount investment exemption. Note the accredited investor definition in Ontario differs from definition in the United States. In addition, if an offering is being made to investors in another province, the fund may be subject to the securities laws of the other province.
Limited Partnerships are tax transparent so capital gains flow through to the underlying investors. Capital gains may be taxed in Canada if such gains result from business carried out in Canada. Resident taxpayers are subject to Canadian tax, but non-residents are not subject to withholding tax on the profits received from the fund.
More Domicile Analysis
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