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March 25, 2021

Funds using low-tax strategy under scrutiny


There's been an appetite among investors, in today's low interest rate environment, to keep more of what are already relatively low yields.

One way to achieve that result is to invest in mutual funds and ETFs that allow an investor to hold a bond portfolio, but enjoy the favourable tax treatment of capital gains. The advantage being that interest income is taxed at your marginal tax rate, while only 50% of capital gains are included in taxable income.

These so-called “advantaged” funds have become extremely popular, so much so that the government is proposing to shut them down, according Finance Misister Flaherty's most recent budget.


"It appears, on first reading, that this proposed change could eliminate the advantage enjoyed by many if not all mutual funds that have been specifically created to convert what otherwise would be taxable interest income to capital gains," Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, told Investment Executive.

While it's likely that existing investments will be grandfathered in some fashion, going forward the advantage will be lost. As a result, a call to your advisor is likely in order.

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...