Come October, structured-note investors may need Aspirin at tax time — Bloomberg

Timothy Hughes

Aug 4, 2016

A recent update to the 2016 Canadian federal budget means new tax rules are looming for Canadian investors who want to sell structured notes before maturity. As outlined in an article by Carolina Wilson in Bloomberg Briefs, as of Oct. 1, the new guidelines — set out by the Department of Finance — on how to claim profits from structured notes that are sold ahead of maturity may cause some confusion come tax season. In certain cases, investors “must undergo a pricing exercise to calculate a potential premium they received on the selling price,” according to the article, which may qualify as capital gains. This is where the grey area is, according to Timothy Hughes, partner in Osler’s Taxation Group.

This premium involves constructing a hypothetical bond based on various criteria, including the issuer’s creditworthiness, and the product’s remaining time to maturity, Timothy tells Bloomberg Briefs.

"This methodology puts taxpayers in the business of pricing off-market bonds," Timothy says. These revisions make this "an unworkable system because it requires the seller to create this hypothetical note," he says.

Under current regulations, investors can treat returns on the securities as capital gains, if sold early, which cuts the tax rate substantially.

Find out more by reading “Come October, structured-note investors may need Aspirin at tax time,” published in Bloomberg Briefs.