Which documents matter most?

Capital-account statements showing the date and amount of each capital call and unit allotment.

What is the main downside to test?

Miscalculating cost basis or holding period when units were allotted across multiple tranches over time.

How should the final decision be made?

Consult a tax advisor on the fund category's specific pass-through characterisation before finalising.

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How Tax Works When AIF Units Are Transferred

Q: What should an investor verify first?

The exact cost basis across all capital called to date, tranche by tranche.

Reena M1 min read

Understanding the Secondary Transaction

For the seller, transferring an AIF unit on the secondary market is a taxable event — capital gains are calculated on the difference between the sale price and the original acquisition cost (including all capital called to date, not just the initial commitment).

Reading Price, Portfolio and Obligations

The holding period for determining short-term versus long-term capital gains treatment runs from the original date of unit acquisition, and Category I and II AIF gains typically flow through to investors with pass-through tax treatment, retaining the same character (business income or capital gains) as at the fund level.

Where Secondary Liquidity Breaks

The common failure is not tracking the exact cost basis correctly, especially when capital was called and units allotted across multiple tranches over time. Each tranche can have a distinct acquisition date, affecting the holding-period calculation for gains on that specific tranche.

Making the Purchase or Sale Decision

Before transacting, confirm: the exact cost basis across all capital called to date, tranche by tranche if applicable; the holding period for each tranche to determine short-term versus long-term treatment; and consult a tax advisor on the specific pass-through characterisation for the fund's category.

Getting cost basis and holding-period tracking right, tranche by tranche, is essential — this is not a calculation to approximate.

Key takeaways

Selling an AIF unit is a taxable capital-gains event based on sale price versus total capital called to date.
Holding period runs from the original acquisition date, tranche by tranche if capital was called over time.
Category I and II AIF gains typically pass through to investors retaining their original character.
Track cost basis and holding period precisely per tranche — do not approximate this calculation.

More in Private-Market Secondaries and Liquidity

Continue with the other chapters in this module.

Private-Market Secondaries and LiquidityWhat Is a Private-Market Secondary Transaction?A private-market secondary transaction is the sale of an existing investor's stake in a fund or private company to a new buyer, before the underlying assets have been realised through a normal exit.Private-Market Secondaries and LiquidityAIF Secondaries Explained for Individual InvestorsFor an individual investor, an AIF secondary is either an opportunity to exit an existing commitment before the fund's natural maturity, or an opportunity to buy into a fund mid-life at a price...Private-Market Secondaries and LiquidityPrimary Fund Investment vs Secondary Fund InvestmentA primary investment commits capital to a fund at inception, into a largely unknown, future portfolio — the classic blind-pool structure.