Clique Capital Investment Thesis

The recent decision by the Canadian government to increase the capital gains tax has ignited a wave of concern among investors, economists, and everyday citizens alike. This increase, intended as a measure to shore up government finances, may have far-reaching consequences for the country's economic landscape. This blog post delves into the intricacies of capital gains tax, its impact on various sectors, and the potential repercussions for Canada's economic competitiveness. By providing a thorough analysis, we aim to understand whether this fiscal adjustment serves the public interest or undermines Canada's economic vitality.

Capital gains tax is levied on the profit realized from the sale of non-inventory assets that were purchased at a cost amount that was lower than the amount realized on the sale. In Canada, this tax affects a range of investments, including stocks, bonds, and real estate, and is only triggered upon the sale of these assets. Historically, Canada has maintained a capital gains inclusion rate—the percentage of gains included in taxable income—at 50%. However, recent legislative changes propose an increase in this rate, which has sparked a debate on its implications.

The tax is calculated by subtracting the original purchase price and associated costs from the final sale price. The resulting gain is then multiplied by the inclusion rate to determine the taxable portion. This taxable gain is added to the individual’s income and taxed at their marginal tax rate. The increase in the inclusion rate means a higher portion of the capital gain will be taxed, effectively raising the amount of tax paid on investments.

The recent hike in Canada's capital gains tax rate is set to significantly alter the financial landscape for individual investors. Traditionally, capital gains tax has been perceived as a fair way to tax wealth accumulation, as it is only applied upon the realization of gains. However, with the proposed changes, the financial burden on gains from equity, bonds, and other securities will increase. This section will explore how these changes might deter individual investment and influence investment strategies, particularly focusing on long-term holdings and retirement planning.

Asset management firms, which handle diversified portfolios encompassing a range of asset classes, are likely to feel the heat from this tax adjustment. An increase in capital gains tax can diminish the attractiveness of investment products that focus on capital appreciation. For asset managers, this could mean a shift in client strategy from growth-oriented investments to those that offer higher dividend yields or other forms of income that might be taxed differently.

Moreover, the increased tax burden could lead to a slowdown in the turnover of assets within managed portfolios, as clients may become more hesitant to realize gains and thereby incur taxes. This could affect the liquidity and performance of managed funds, potentially leading to a decrease in fund inflows and an overall more cautious investment approach. Asset managers might need to reassess their strategies, possibly increasing their focus on tax-efficient investing techniques such as tax-loss harvesting and the selection of tax-advantaged accounts.

From the perspective of private equity (PE) firms, the increase in capital gains tax poses significant concerns. Private equity investments are typically structured with a horizon to maximize capital gains from company growth and operational improvements. Higher capital gains taxes could thus directly reduce the returns on these investments, potentially making Canada a less attractive destination for private equity capital.

PE firms might face difficulties in raising new funds as investors recalibrate their expected net returns considering the higher tax rates. Furthermore, the exit strategies for current investments might need to be re-evaluated. This could involve extending investment horizons to compensate for the higher tax bite or shifting strategies towards income-generating ventures rather than purely growth-oriented investments.

For startups, an increase in capital gains tax can have a stifling effect on innovation and growth. Startups depend heavily on venture capital, which is fueled by the prospects of substantial capital gains. As the tax burden on these gains increases, potential investors may be less inclined to invest in risky startup ventures, leading to a decrease in available capital.

Moreover, for entrepreneurs, the prospect of a higher tax on potential future gains could deter the founding of new companies. This is particularly impactful in tech-centric hubs like Toronto and Waterloo, where startup ecosystems thrive on robust investment and reinvestment cycles. If the capital gains tax rise leads to a contraction in these activities, it could have long-term repercussions on innovation and employment within the Canadian tech sector.

Canada's Capital Gains Tax Increase

 is a financial issuance mechanism whereby tokenized digital securities, underpinned by tangible assets, equity, or debt, are sold to investors in accordance with stringent regulatory frameworks. These offerings are designed to combine the efficiency and transparency afforded by blockchain technology with the rigorous compliance demands of conventional securities laws. Each token issued in an STO represents an investment contract into an underlying investment asset, such as real estate, corporate equity, or debt instruments, effectively allowing the token to embody the characteristics and legal protections typical of traditional securities.

In an STO, assets are converted into digital tokens on a blockchain, leveraging the technology’s inherent benefits such as immutability, transparency, and security. This process, known as tokenization, enables fractional ownership of assets, broadening access to investment opportunities that would otherwise require significant capital outlays. The legal framework governing STOs mandates comprehensive compliance measures including, but not limited to, the registration of the offerings with relevant financial regulatory authorities (e.g., the U.S. Securities and Exchange Commission), adherence to anti-money laundering (AML) statutes, and rigorous know-your-customer (KYC) protocols to verify investor eligibility and compliance.

The structured nature of STOs provides several advantages over traditional and other digital offering methods:

By tokenizing traditionally illiquid assets like real estate or private equity, STOs facilitate easier exchange and trading on secondary markets.


 STOs open up investment opportunities to a global pool of investors, potentially increasing capital formation and distribution efficiency.


 The fractionalization of large assets lowers the minimum investment threshold, making high-value investments accessible to a broader audience.


 Operating within the bounds of securities law, STOs offer a level of investor protection that unregulated token offerings, such as many initial coin offerings (ICOs), do not.

Below is a greater deep dive and some real use case examples of STO's


STOs significantly improve liquidity for traditionally illiquid assets by enabling their fractional ownership and simplifying the exchange process on secondary markets. This makes it easier for investors to buy and sell shares of assets that would otherwise be difficult to trade, such as commercial real estate or fine art.

Real-World Example: The tokenization of a luxury resort in Aspen, Colorado, through an STO allowed the ownership of the property to be converted into digital tokens, each representing a fraction of the property's equity. Investors could buy and sell these tokens on various exchanges, thus providing liquidity in a market typically characterized by high entry barriers and low liquidity.


By leveraging blockchain technology, STOs can transcend geographical boundaries, allowing investors from around the world to participate in offerings that were traditionally limited to specific locales due to regulatory or logistical constraints. This global investor pool can lead to quicker capital raises and a more diverse investment base.

Real-World Example: A blockchain platform for capital markets has been involved in several STOs that offer global participation. For instance, the platform issued security tokens that represent shares in the company itself, allowing investors from different countries to invest in and trade these tokens, subject to local regulations.


STOs allow for the fractionalization of assets, making it financially feasible for smaller investors to participate in investment opportunities that require large capital outlays, such as in real estate or private equity.

Real-World Example: A venture fund using STOs to open up investment lowered the minimum investment threshold by issuing tokens representing shares in the fund, thus democratizing access to venture capital investments.


Operating under strict regulatory frameworks, STOs provide protections typical of traditional securities, including transparency in issuance and trading, and legal recourse in the event of disputes or malpractice. This regulatory compliance helps protect investors against the risks prevalent in less regulated markets.

Real-World Example: A Swiss real estate investment company completed an STO that adhered strictly to Switzerland's financial market regulations. They provided investors with tokens backed by a portfolio of prime real estate, combining regulatory security with investment in high-value assets.


Blockchain's inherent characteristics ensure that all transactions are recorded in a verifiable and immutable manner, which increases the transparency and security of financial transactions. This reduces the potential for fraud and errors, providing a clear audit trail.

Real-World Example: A platform for tokenizing private securities facilitated the tokenization of several real estate funds worth over $100 million. The blockchain records every transaction and ownership change, providing a transparent and immutable history that enhances security and trust among investors.


The use of smart contracts in STOs automates many aspects of the investment and compliance processes, such as dividend distribution, voting rights management, and compliance with regulatory requirements. This automation reduces administrative burdens and costs, enhancing overall efficiency.

Real-World Example: A venture capital fund specializing in the tech sector utilized smart contracts for its STO to automate dividend distributions and other administrative tasks, significantly reducing the overhead associated with managing a traditional venture capital fund.


STOs make it easier for startups and small businesses to access capital markets by providing a more streamlined and cost-effective method for raising funds compared to traditional methods like initial public offerings (IPOs) or venture capital.

Real-World Example: A blockchain-based startup conducted an STO to raise funds for its platform, which provides instant crypto-backed loans. This allowed the startup to bypass traditional venture funding routes and access a broader range of investors.

These examples underscore the transformative potential of STOs in democratizing access to investment opportunities, enhancing the liquidity of assets, and ensuring compliance and transparency through the use of blockchain technology.

What is an STO?

The Transformative Potential of Asset Tokenization in Modern Finance

In the rapidly evolving landscape of financial technology, asset tokenization emerges as a groundbreaking innovation, redefining traditional concepts of asset management and investment. By bridging the gap between physical assets and digital technologies, tokenization utilizes blockchain to link financial assets to digital tokens. These tokens accurately represent the fair market value of the underlying assets, enhancing liquidity and broadening access to capital markets.

Asset tokenization refers to the process of issuing a blockchain token that digitally represents a real, tangible asset. These tokens can be bought, sold, and traded on digital platforms, reflecting ownership or stakes in the underlying assets, ranging from real estate and art to stocks and bonds. This digital representation simplifies transactions, enhances transparency, and reduces the need for intermediaries, offering a more direct and efficient means of asset management.

The potential market impact of tokenization is profound, with industry experts predicting it could unlock trillions of dollars in new value within the next decade. By tokenizing assets traditionally considered illiquid, such as real estate or fine art, tokenization could dramatically increase market efficiency and liquidity. This increase in liquidity not only makes these assets more accessible but also could potentially increase their overall market value by making them available to a broader range of investors.

The adoption of asset tokenization is gaining momentum among institutional asset managers. Surveys indicate a substantial interest in exploring and implementing tokenization solutions. This enthusiasm is driven by the promise of higher efficiency, lower costs, and the opening up of new markets which were previously inaccessible due to high entry barriers or regulatory constraints.

1. Bonds Issuance: Tokenization can revolutionize the bond market by enhancing transparency and expediting settlement processes. Tokenized bonds streamline operations and reduce the complexity and cost of transactions, making the bond market more accessible and appealing to a broader range of investors.

2. Real Estate and Commodities: By tokenizing real estate and commodities, these assets can be divided into smaller, more affordable units, allowing for fractional ownership. This democratization of asset ownership can significantly increase the pool of investors, improving liquidity and potentially stabilizing market fluctuations.

3. Exchange-Traded Funds (ETFs): Tokenization offers the promise of transforming the ETF landscape by enabling faster transaction speeds and greater transparency. This can lead to more dynamic trading strategies and enhanced investor engagement, further integrating the financial markets with modern technological capabilities.

While the benefits are compelling, the path to widespread adoption of tokenization is fraught with challenges:

 One of the most significant technical challenges facing tokenization is ensuring that different blockchain platforms can interoperate seamlessly. Without standardized protocols, the risk of fragmented markets remains high, potentially stifling growth and innovation.

 The regulatory framework for tokenized assets is still in development. Financial institutions must navigate a complex landscape of international, federal, and state regulations, which can vary widely and impact the adoption and scaling of tokenization technologies.

Various jurisdictions are actively developing regulations to accommodate the growth of tokenized assets. These regulations aim to protect investors while supporting innovation and stability in the financial system. By setting clear guidelines, regulators can help foster an environment where tokenization can flourish safely and sustainably.

Looking Ahead: The Future of Tokenized Finance

As the financial sector continues to integrate with advanced technologies, tokenization stands at the forefront of this transformation. It offers a path to more fluid markets, broader investment opportunities, and enhanced operational efficiencies. Institutions that can effectively leverage these technologies while navigating the associated challenges will likely lead the charge into a new era of digital finance.

The journey of integrating tokenization into mainstream financial practices is complex and challenging but holds immense potential for transforming the financial landscape. By addressing the current barriers and fostering a regulatory environment conducive to innovation, the financial sector can unlock the full potential of this promising technology, ushering in a new age of inclusivity and efficiency in asset management.