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So, would you like to save some tax?

April 25, 2014

So, would you like to save some tax?

We have found that many accountants and most people are unaware of the significant advantages available to non RRSP investors when investing via Corporate Class Funds. Tax time is a perfect time of year to review the tax you are paying and look for ways to pay less.
Tax Savings and financial umbrellas
Unlike a traditional mutual fund where each fund is set up as a trust, think of a mutual fund corporation as an umbrella structure which holds many different funds. Investments within the corporation can be bought and sold and as long as the assets do not leave the corporation there is no deemed disposition — hence no tax payable until the money is finally withdrawn. Also, gains, losses, interest and expenses are shared between the various classes of funds resulting in numerous tax benefits for investors.

The benefits of the corporate-class structure include:

  1. Potential to convert interest income into deferred capital gains. In a mutual fund corporation, where all products within the umbrella can share costs, income, and gains; tax-inefficient interest income can be converted into tax-efficient dividends and/or capital gains. This can result in significantly lower taxes for a balanced or income oriented investor.
  2. OAS Clawback. The government starts to claw back OAS benefits when income exceeds $66,000. Corporate class funds let us reduce investment income by converting it to capital gains (only 50% of a gain is included) and deferring that income into the future. That reduces the income declared.
  3. Incorporated Business Owners. Many business owners have built up after-tax profits within their corporation and rather than withdrawing those funds and investing them personally they are being invested by the corporation. However, corporate tax rates on passive income are generally taxed even higher than the top marginal rates for individuals. Therefore, reducing the amount of investment income reported by a corporation is very beneficial. Using corporate class funds for corporate investments can keep yearly taxable income to a minimum, and as mentioned earlier can also convert interest income into a deferred capital gain thereby reducing the amount of investment income that is subject to the high passive income tax rates.

There are more than $850 billion in mutual funds nationally, but only $59 billion is in corporate-class structures, yet there are many advantages to using such structures, especially for corporations and retirees needing income. If you have non-registered investments or hold investments within an incorporated business and would like to pay less tax, give us a call!!

It is our strong belief that to be successful in reaching your goals it is necessary to have a plan in place and to follow a process. That is, to make your life and financial decisions not by accident but by design.

Remember, successful people ACT towards the future they want!

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