Why Canada’s banks care about 'synthetic' trade crackdown

Timothy Hughes

Apr 23, 2015

Tim Kiladze, The Globe and Mail


As part of the federal budget, Finance Minister Joe Oliver, who once worked on Bay Street, proposed preventing banks from making [‘synthetic equity arrangements’] in order to dodge taxes. At the moment, it is unclear how many Big Six banks still utilize these trades, which are conducted on what is known as “Delta One” desks, but they were once widely used.

Aside from the banks, there are concerns the crackdown will affect the average Canadian. Timothy Hughes, a tax lawyer with Osler, Hoskin & Harcourt LLP, said the government’s move to crack down on these synthetic equity arrangements was “over board” and could end up also costing retail investors, as mutual funds and investment funds will need to make sure they are complying with the new rules.

“I think it will affect anybody who holds stock and then hedges their exposure away for any reason, for risk management purposes, for investment purposes,” Mr. Hughes said. “… It is crushing an ant with a sledgehammer.”

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