June 1 (Bloomberg) -- The governments of Canada and Ontario plan to sell all of their shares in a restructured General Motors Corp. within eight years of an initial public offering that’s scheduled for 2010, a government official said today.

The governments will sell at least 5 percent of shares every year and will have sold at least 65 percent by the end of the sixth year following the IPO, said the Canadian government official, who spoke to reporters on the condition of anonymity.

Canada and Ontario are investing $9.5 billion in GM, which today filed for bankruptcy protection in the U.S., and will take an equity stake of about 12 percent in the restructured company, the Canadian government said today.

“This was a difficult choice to make,” Prime Minister Stephen Harper said at a Toronto press conference with Ontario Premier Dalton McGuinty. The alternative would have been to see Canada lose thousands of jobs, which was “unacceptable,” he said.

The Canadian government is providing two-thirds of the package and the Ontario government providing the other third, the provincial government said in a statement.

GM’s Canadian production tumbled 41 percent last year from 2007 to 463,869 units and its sales in the country fell 13 percent to 329,246 units, lowering its share of the market to 20 percent from 23 percent in 2007, according to data from DesRosiers Automotive Consultants Inc.

Budget Deficit

Harper said the aid package accounts for most of the increase in the projected deficit for 2009. Finance Minister Jim Flaherty said May 26 the budget shortfall in 2009 would be more than C$50 billion ($46 billion), up from the C$33.7 billion forecast in his January 27 budget.

Harper said the updated budget figures are based on the assumption the government will get no recovery of the investment, adding that the decision reflects a desire to be conservative with its budgeting.

The company committed to C$2.2 billion in capital expenditures in Canada through 2016, and another C$1 billion in research and development, the official also said.

The aid package includes a $1.3 billion loan at a minimum rate of 7 percent to be repaid within eight years after the company emerges from bankruptcy protection. Canada and Ontario will also receive $400 million of preferred shares, the official said. The total announced today includes the C$500 million advanced last month to GM.

GM. won’t file for bankruptcy protection in Canada, spokesman Stew Low said in an e-mail today.

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

Last Updated: June 1, 2009 14:21 EDT