Proposed sales tax changes to impact LPs and investment plans

Written by Mike Woollatt, CEO
Canadian Venture Capital and Private Equity Association

The Department of Finance has released a consultation on sales tax changes that will impact many CVCA members — mostly positively, we believe.

In short, under the proposed changes, management fees and other expenses would no longer be charged GST and HST tax based on where the fund is domiciled, but rather based on where the LPs are domiciled. This includes international LPs, which will no longer be charged GST/HST on their pro-rated share of management fees.

We believe this will primarily have a positive impact on CVCA members, with the exception of those based in a low GST/HST rate jurisdiction, in provinces such as Alberta, with a predominance of their LPs from a higher rate jurisdiction such as Ontario.

In addition, the Department of Finance has proposed that Canadian funds who currently operate as LPs in international funds be charged HST on management fees and various supplementary expenses. This proposition will likely spark more competition between Canadian GPs and LPs, however is predicted to be received negatively by Canada’s large pension plans and other LPs investing in international funds.

The Department of Finance have worked diligently to ensure these changes are lucrative and sustainable, and the proposed changes are supported by and large by the CVCA.

While the consultation period concludes in late November, the CVCA is working alongside its members to collect feedback on the proposed changes.

We invite you to read this note prepared by the head of the CVCA’s Tax Policy Committee, Jocelyn Blanchet, who has worked on this issue for some time.