Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: How "carried interest" is taxed in Canada.
Position: Question of fact - general comments provided.
Reasons: See IT-479R Transactions in Securities
November 29, 2011
XXXXXXXXXX
Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence of September 2, 2011, regarding how "carried interest" is taxed in Canada, as well as the capital gains inclusion rates for 2000 to 2010.
"Carried interest" is a term often used to describe an arrangement in which a manager of a financial partnership, such as a hedge fund, private equity fund, or venture capital fund, receives an equity participation in the fund in exchange for his or her services. Determining whether a gain or loss from such activities will be taxed as either an income gain or loss or as a capital gain or loss is ultimately a question of fact that can be determined only on a case-by-case basis. Generally, the gains and losses of a taxpayer who is a trader or dealer in securities or who carries on a business of trading in securities are taxed as an income gain or loss. The factors considered in making such a determination are discussed in Interpretation Bulletin IT-479R, Transactions in securities, which is available on the Canada Revenue Agency Web site at www.cra.gc.ca/E/pub/tp/it479r.
The inclusion rate, which is the rate used to calculate taxable capital gains or net capital losses, for capital assets disposed of after October 17, 2000, is 50%. Three different capital gains inclusion rates were used in the year 2000:
Date: Inclusion Rate:
January 1 to February 27, 2000 75%
February 28 to October 17, 2000 66.6666%
October 18, 2000 to current 50%
If you require more information on this topic, I invite you to call Mr. Guy Goulet, an official with the Income Tax Rulings Directorate, at 613-957-2745. The CRA accepts collect calls. Mr. Goulet is aware of our correspondence and will be pleased to help you.
I trust that this information is helpful.
Yours sincerely,
Gail Shea, P.C., M.P.
Minister of National Revenue
Tom Posadovsky
613-952-8283
2011-042459
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