Tax Strategies

Corporate Class Funds

Many major fund companies offer corporate class structures for their mutual funds, which can provide tax efficient growth while minimizing current taxes. This is achieved through structuring large groups of funds as a single mutual fund corporate structure (MFC).

One advantage to the investor when switching between funds for rebalancing their portfolio is that it does not trigger any taxes, which can be a huge advantage for investments not sheltered within a registered plan. A second advantage is the MFC can use expenses from one fund to offset income generated by another fund within the structure, which results in minimal or no tax growth.

Another current advantage of some of the corporate class fixed income treasury bill, and bond funds, is they do not pay out interest distributions. Many of these funds were formed through moving previously poorly performing funds into a MFC, and rolling losses forward.

Spousal Loan

Another strategy for reducing taxes paid on investments is through the use of a spousal loan. This can be effective in a situation where there is a large discrepancy in income between spouses and interest rates are low. The spouse with the higher income can make a loan to their spouse, who then invests the money and pays taxes on income at their lower marginal tax rate. The high-income spouse must report the interest as income but the overall savings should be sufficient assuming the income earned is at a higher rate than the loan interest rate which is established by the CRA.

Family Trust

Another strategy for reducing overall taxes, which may be suitable in certain family situations, is to create a trust for children or grandchildren. Capital gains earned within the trust are taxed to the minors, who are allowed to earn approximately $18,000 capital gains, tax-free per year.

Go to our Tax and Estate Planning page and our Retirement Planning page for more information on how Bircher Financial can help you achieve your goals.

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    Bircher Financial

    For over 20 years Bonnie Bircher and associates have guided clients through every aspect of their financial life. From investing and saving to retirement and estate planning, Bircher takes pride in offering the highest levels of service and ethics.