The Globe and Mail’s Post

There is a lot to unpack here. Private assets have lock up periods and redemption schedules. If the advisor didn't act on instructions quickly enough, that would be one thing. Though in this case it sounds like the request was not received in time to complete the redemption in time. That is unfortunate, but not the fault of the advisor. Also, I read the works "portfolio manager", which tells me the DS advisor ran the account on a discretionary basis. Such advisors do not take trading instructions from clients, rather complete an investment policy statement and then implement that. Discussions between clients and advisors usually focus on goals, tax planning, etc. and not so much which holdings to buy and sell. It sounds like this client wanted to be more hands on with their portfolio and as such should have worked with a more transactional broker. Finally, all of this highlights the biggest problem with the Liberals capital gains tax changes. The June 24th deadline was ridiculous and was always going to lead to issues like this. Such a major change should have been done with a December 31st date to line up with the tax year end. This would have given advisors and their clients sufficient time to do actual tax planning.

I assume this was a corporately held investment? If it was personally held, the June 25th cut-off could be worked around somewhat. The client can realize gains up to the $250k mark in 2024, and then repeated this again in Jan. 2025, 2026,..., until fully realized. If there were liquidity constraints on this alternative investment, was the client aware of them?

It all seems to boil down to a question of responsibility: the investor's, the advisor's ,the accountant's. The conservative path for all three would have been to assume that the federal government would act on its April 16 Budget intention regarding capital gains and then take the appropriate measures at once. Given the money involved, it can also be reasonably assumed that this investor fell into the 'accredited' category as ,generally, only accredited investors can access private credit vehicles such as the Onex fund that was referenced. So, an equally large issue becomes the rules and regulations around the accredited category where there has been pressure here and elsewhere(the US) to ease up on the entry points to this class of investor following pressure from both advisors, fund manufacturers and retail(non-accredited) investors. Politically speaking, however, there is likely to be little to no public or governmental sympathy for this investor in the current environment as the story at first glance appears to confirm Ottawa's view that only a very small percentage of Canadians would be impacted by the April 16 capital gains measures.

Ideally the advisor should have reached out to the client and their accountant when the changes were announced to see if any planning opportunities were available(knowing the lockup period of the fund). Many accountants recommended to leave the capital gain in place as you need real tax dollars to pay the tax due now, and if this was a long term position it could have been best to leave it. If a conversation had occurred earlier a notional sell/buy could have been done. Most non-alternative fund companies will do that on the same day.

Erica Alini thank you for the article. I expect that we are going to hear more stories like this where accountants, lawyers, investment advisors, real estate agents, business brokers, etc. were unable to finalize deals/transactions within the 10weeks from the announcement date, especially due to the fact that the detailed rules were only released with two weeks remaining before June 25 effective date. I expect taxpayers that suffer an increased tax burden as a result will be looking for accountability. Will it be their own, their advisor or the government? Only time will tell how this part of the capital gains story plays out.

This is so wrong. I heard a lot of advisors passing the buck to the accountant. I get that advisors are not accountants but we should be well trained in tax matters and have an understanding of the impact of these changes. And most importantly, be proactive with clients. 

And then there is the impact where many independent businesses (critical to our economy and communities) sold their businesses prior to the June 25th deadline to minimize the additional tax for their hard earned work….

If its unlisted any disposal would be on a 'best efforts' basis.

The tax man cometh...