Companies, asset managers in a quandary with capital-gains tax increases

Deputy Prime Minister and Minister of Finance Chrystia Freeland tables the federal budget in the House of Commons in Ottawa on April 16.Large real estate owners, private equity companies and other asset managers have been thrown into disarray after the federal government hiked capital-gains taxes, with companies unsure of their next steps and some rushing to close deals before the new tax regime goes into effect in late June.

The proposed hike to the capital-gains tax set off a flurry of calls between private equity companies and their advisers, and raised concerns about competitiveness and investment returns. If a company or private equity company decides to put the asset up for sale, potential buyers would have the upper hand because they know the seller is trying to complete the sale by the end of June.

Private equity and real estate executives said the higher capital-gains tax is counterproductive at a time when Canada is struggling to boost its productivity rate and seeking to attract more capital to invest in the country. Veronica Green, a vice-president with Slate Asset Management, a real estate and investment company, said the new tax was “not good for the Canadian economy, and all real estate owners.”

“It’s not going to be a direct drive that they increase the capital-gains tax and now we’re losing all our investment and money’s not coming to Canada. But I would say we are marching down the path of making Canada not as attractive as other jurisdictions,” said Grant McGlaughlin, partner and co-leader of the private equity practice at Fasken Martineau DuMoulin LLP.

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