Tax Planning – Using Corporate Class Funds

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THUNDER BAY – Money – Corporate class funds are a popular product non-registered savings mainly because it offers tax deferral.  Corporate class funds have their name because they are mutual fund companies set up as corporations instead of trusts, and are structured with multiple classes of shares.  These shares are redeemable and exchangeable to shares of any other class with each class of shares being managed as a separate fund.

How they provide tax efficiency

These funds provide tax efficiency by pooling income, capital gains, losses and expenses across funds and minimizing fund distributions.  These funds distribute income as dividends or capital gains, which are taxed at a lower rate than interest income.  These funds also allow you to switch between funds without triggering capital gains.  These funds allow investors to defer capital gains, but tax liabilities are always inevitable. 

Benefits to corporate investors

Corporate class funds can provide additional benefit to those corporate investors.  These funds allow corporations to pay tax free dividends to their shareholders when there is a capital gain.  50% of the capital gain becomes the non-taxable portion and can then be distributed to shareholders of the corporation tax-free.  Even when the corporation requires only a short term investment, such as holding cash, investing in cash management corporate class funds provide liquidity and tax effective income.

The Bottom Line

Mutual funds setup as corporations instead of trusts are meant to improve tax efficiency and meet investment goals.  Instead of slowing investment returns to shareholders in the same form they were earned, the corporation combines income, capital gains, and losses across all classes of shares while using strategic strategy to pay out capital gain distributions.  If you would like any further information on corporate class funds, do not hesitate to contact me directly. 

Anthony M. Talarico

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