CANADA Law and Practice Contributed by: Darin Renton, Jill Winton, Amy Chao and Irena Ninkovic, Stikeman Elliott LLP
cial rules are applicable to OMs used in connection with the OM exemption, but this exemption is rarely used for investment funds. See 4.5 High Net Worth or Retail Investors for further details. Alternative funds must report securities distributed to accredited investors by way of a private placement by completing and filing a report of exempt distribution on Form 45-106F1 with the applicable securities regu - lator online through SEDAR+, together with the appli - cable filing fee. Such reports are generally due within ten days of a sale of securities in Canada, but invest - ment funds relying on certain prospectus exemptions have the option of filing Form 45-106F1 on an annual basis, within 30 days of the end of the calendar year. The report of exempt distribution contains information on the fund and on the compensation paid to a dealer, and details of the Canadian investors and the size of their investments. Neither the OM (in most cases) nor investor-level information provided to the secu - rities regulator under Form 45-106 is publicly avail - able. Freedom of information legislation may require the securities regulator to make this information avail - able if requested, although securities regulators have indicated that they would oppose any such freedom of information requests for investor information con - An alternative fund that is a trust resident in Canada is subject to income tax in Canada on its net income. However, in computing net income, the trust is gen - erally entitled to deduct distributions it pays to hold - ers, so a trust will generally pay distributions to the extent necessary to avoid being subject to income tax (unless the trust has had losses it can use to otherwise offset its income). Alternative funds that are structured as partnerships are generally not subject to Canadian income tax. Instead, income of the partnership is allocated to holders and taxed at the holder level. tained in a Form 45-106F1. 2.4 Tax Regime for Funds In certain cases, publicly traded partnerships and trusts may be taxed as corporations in Canada; in such cases, holders will generally be taxed on income
from the trust or partnership (as applicable) as if they received a dividend from a Canadian corporation. 2.5 Loan Origination Alternative funds are permitted to originate loans. Most lending is unregulated, apart from federal crimi - nal interest rate regulations. Mortgage lending and administration, residential, commercial and farmland are subject to provincial licensing. Similarly, there are extensive special rules with respect to consumer credits, which differ by Jurisdiction. 2.6 Non-Traditional Assets Canada is one of the jurisdictions at the forefront of fund investments in non-traditional assets, in particu - lar digital assets and cannabis and cannabis-related investments. Private funds can invest in these types of assets, as can public funds under certain conditions. Some crypto-assets and crypto-asset-based con - tracts are considered securities for the purposes of Canadian securities laws, and there are special rules around custody for crypto-assets that generally follow the rules for custodians of public investment funds prescribed in NI 81-102. There are no special rules with respect to litigation funding, but some regulated sectors in Canada have sector-specific regulation, including with respect to investments in these sectors, such as financial insti - tutions, telecommunication, broadcasting and trans - portation, among others. The sector-specific restric - tions apply generally and are not specific to alternative funds. 2.7 Use of Subsidiaries for Investment Purposes Alternative funds often use subsidiaries to hold spe - cific assets, like real property, to ring-fence liabilities or to avoid carrying on active business (such as loan or mortgage origination). For example, funds formed as mutual fund trusts are not permitted to actively participate in the business and management of their investments. Mutual fund trusts that invest to provide exposure to active business, such as direct lending or real estate development, typically invest via a sub - sidiary formed as a limited partnership that is fiscally transparent and can conduct active business.
63 CHAMBERS.COM
Powered by FlippingBook