Apr 7, 2016
In a Bloomberg Brief article, journalist Carolina Wilson reports on a provision in the 2016 Canadian federal budget that will change the favourable tax treatment that structured notes currently enjoy. Effective October 1, 2016, profits on structured notes that are sold before coming due will no longer be treated as capital gains, and instead will be taxed as income – at a much higher rate. Timothy Hughes, a partner in Osler’s Taxation Group explains that this new provision will create “internal inconsistency” in how structured notes are dealt with, since losses on the investments will still be treated as capital losses while profits will be treated as income. As a result, investors will not be able to use the losses to offset the gains.
“This inconsistency remains baked into the budget proposals,” Timothy said. “The Department of Finance had an opportunity to create a complete solution, but instead left linked-note investors with the same square peg and round hole.”
For further details, read Carolina Wilson’s full article Canada plans to drop capital-gain treatment for notes at Bloomberg Brief, April 7, 2016.