Tax Implications of Alternative Investments

Geoff Currier

The days of portfolios made up solely of stocks and bonds are long gone. We are now in an era in which investors are looking for alternatives to traditional investments like mutual funds. The field of alternative investments is a broad one and it means keeping up to date on all of the tax implications for your clients who choose one or more of those investments. It’s one that will be discussed in more detail at the Acuity Conference for Distinguished Advisors (DAC) on November 22-24. Early registration with significant savings ends June 30. A new edition of the Real Tax News Podcast also covers the topic. Here’s a primer on what you’ll learn more about: 

Crypto Currency: You may have clients who are now invested in crypto currencies. This is an area unto itself as while it’s called a currency, the Canada Revenue Agency (CRA) views it as an asset rather than currency. According to the government,“ When you dispose of a crypto-asset, the income or loss may be considered business income or loss, or a capital gain or loss.” There’s much more for your clients to understand when it comes to this form of investment before they jump in with both feet.

Hedge Funds: For those more inclined to something less volatile, there are hedge funds. These were once the exclusive domain of the wealthy but now the average or even the beginner investor can get into hedge funds. 

You can help educate your clients about the tax rules governing the disposition of hedge funds, which are generally taxed as capital gains. According to the government “the exact tax treatment-especially the inclusion rate and the tax rate applied-depends on your jurisdiction, the classification of the fund, and the specific assets involved.” If your clients keep you informed of their investments and you keep them educated, they can be spared some potentially unpleasant surprises at tax time.

Different Options: Other forms of alternative investments include private credit, private equity and real estate. Each of these options carries with it its own tax implications and regulations and your clients should be made aware of them before they delve in and certainly before they decide to dispose of any of these investments. 

The Bottom Line: Consulting a qualified investment advisor who specialises in this type of wealth management should help your clients make the right choices for their personal goals. Some of these investments are liquid, meaning they can dispose of them at any time but others are less liquid and it’s important for your clients to understand the difference. If they haven’t spoken with a qualified expert in the area, you can suggest that they do so.

We cover the topic of alternative investments in our podcast, Real Tax News with Evelyn Jacks and Friends. Aaron Dubnicoff of Arrow Capital Management Inc. covered the basics and you can listen to that conversation wherever you find your favourite podcasts.