ILP, SLFI, HST – tax acronyms every fund should know

When we structure private equity funds, whether through a mutual fund trust, limited partnership or certain other entities, considerable time is spent on the income tax issues. We examine the deductibility of the management fees. We consider strategies for delivering the carried interest to employees in a tax-efficient way. We take steps to keep the flow-through nature of the mutual fund trust and prevent it from being a SIFT trust. We draft detailed securities tax disclosure dealing with allocation and distribution of earnings to unitholders, the resulting impact on adjusted cost base and the tax consequences of redemption of units, among other issues. What we often don’t do, however, is consider the GST/HST implications. At first glance, this makes sense, as the only sales private equity funds usually make are sales of trust or partnership units (or shares of a corporation). The fund’s income is generally derived from interest or dividends. All of these are…

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