Effective October 31, 2011, the Minister of Finance (Canada) approved the addition of the Bermuda Stock Exchange ("BSX") to the list of designated stock exchanges under the Income Tax Act (Canada) (the "ITA").

The BSX is only the second foreign stock exchange to be added to the list of designated stock exchanges since the concept of designated stock exchange was introduced in Canada's 2007 federal budget ("Budget 2007").

Budget 2007 updated the concept of "prescribed stock exchange", which was provided for under the Income Tax Regulations and was used in a variety of contexts under the ITA. The list of prescribed stock exchanges was replaced with a three-tiered system of stock exchanges: designated stock exchanges, recognized stock exchanges and stock exchanges.

A "designated stock exchange" is a stock exchange that has been designated by the Minister of Finance by public notice, and includes all existing stock exchanges that were previously prescribed in the Income Tax Regulations. Additions to the list of designated stock exchanges no longer require amendments to the Income Tax Regulations.

The Minister of Finance's process for evaluating whether a particular stock exchange should be a designated stock exchange ensures that investors will be confident that their securities are traded on regulated and transparent markets. Some of the Minister of Finance's considerations when assessing whether a foreign stock exchange should qualify as a designated stock exchange are:

  1. whether the exchange has acceptable standards for new company listings, including standards that address the number of shareholders, the dispersion of ownership, and for the maintenance of a listing;
  2. whether the exchange operates within a regulatory framework that meets acceptable standards in relation to investor protection, disclosure requirements, corporate governance, and market integrity;
  3. whether the exchange has an experienced management and governance team, a successful track record of operations, and sufficient financial resources to ensure long-term viability;
  4. whether the host country of the exchange has commercial, legal and tax relations with Canada; and
  5. whether the securities regulatory and juridical framework of the host country of the exchange provides rights and remedies to Canadian investors which are comparable to those available to investors in Canada.

Designation status in Canada is particularly important for Registered Retirement Savings Plan ("RRSP") investors, as securities listed on designated stock exchanges are eligible to be held in an RRSP. Securities listed on designated stock exchanges are also eligible investments for Deferred Profit Sharing Plans and for Tax-Free Savings Accounts. The addition of the BSX provides Canadian investors with the opportunity to further diversify their investment portfolios and maximize the investment returns in their tax deferred accounts.