portfolio investment

The Canadian-resident taxpayers were shareholders of a BVI company (“SLT”) which, in turn, held notes issued by two foreign subsidiaries of two Canadian banks (“BNSIL” and “TDII”). The notes were payable in 15 years' time and the amount payable was calculated by reference to the performance of a reference portfolio of equities or bonds.

The taxpayer (“Gerbro”) was a Canadian investment corporation (owned by a family trust but with an elderly income beneficiary, so that Gerbro was required to have liquid investments) whose board-established investment guidelines specified that between 0% and 30% of its holdings be of directional hedge funds and 0% to 30% be of non-directional hedge funds (i.e., uncorrelated with the equity markets).