St. Cyr and Associates Financial planning

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WEALTH MANAGEMENT - Mutal Funds

CORPORATE CLASS FUNDS

Recently, “Quadrus Investment Services” created an innovative product aimed at minimizing the tax bill for non-registered investments. These funds called “Corporate Class Funds” are interesting for a couple of reasons.
  • Investors can purchase into a corporation that houses investment classes, the equivalent of the company's mutual fund trusts.
  • Inside the corporation, an investor may switch between classes without having to pay taxes on gains. Normally switches between mutual funds are taxable events.

The corporate class funds are very tax efficient for two reasons:

  • They offer tax deferral;
  • and income is paid out as capital gains

The tax savings from investing in a corporate class over an unsheltered mutual fund can be significant given that most investors will switch between funds in a given fund family.

If the investment is unsheltered, an investor will be liable for capital gains tax on any profits when switching, leaving less money to compound in his or her portfolio.

The corporate classes work like an RRSP in that investments are only taxed when removed from the corporation. Unlike an RRSP, these gains are only 50 percent taxable because they are treated as capital gains. So for a fixed income portfolio, the corporate class has the ability to turn what is normally interest income into capital gains.

Interest income is fully taxable unlike capital gains, half of which are taxed. This is a big saving for investors who would otherwise have cash parked in money market funds paying monthly distributions that are taxed as interest income.

Investors should pursue a strategy for sheltering their entire portfolio of investments from taxation. The RRSP is the ultimate barrier of protection against tax. For non-registered investments, these relatively new tax efficient products offer a strong layer of cover where there would otherwise be none.

"Insurance products, including segregated fund policies are offered through St. Cyr and Associates, and Eugene Ivanov, Rene Boudreault, Jeff St. Cyr, Leo St. Cyr, investment representatives, offer mutual funds through Quadrus Investment Services Ltd".