The 2016 Federal Budget will make switching between corporate-class funds a taxable event later this year. But it didn’t give an exact date, saying, “This measure will apply to dispositions of shares that occur after September 2016.”
A CRA spokesperson has confirmed to Advisor.ca that “the tax measure will apply to dispositions of shares that will take place on and after October 1, 2016.”
Read: Mutual fund corporations lose tax advantage
Some fund companies are advising clients to review holdings “prior to September 2016” — a prudent move, to be sure. But rest assured clients technically have until September 30 to take advantage of the old rules.
Despite the changes, advisor Jason Pereira will continue recommending corporate-class funds.
Between now and October 1, he doesn’t expect to make many tweaks. “If there was anyone for whom we’d have to make an allocation shift in the next three years, we may make the move sooner to avoid the taxation issue.”
And after that, “I’m going to be more cognizant of what someone’s stage in life is. If I had someone I was going to move into an income portfolio in their late 60s, I might do that sooner now, knowing I’d be locked into it.”
And there’s another option for people who want to ratchet down their risk from, say, 60/40 to 50/50. “The back door is to use a corporate-class T-series fund to take return of capital and then invest that more conservatively.” That is a gradual solution, though, since you can only take back 8% of capital each year.
Read: Consider T-Series for tax-efficient cash flow
“Overall, corporate-class funds still make sense. One of the advantages is gone, but they still live to fight another day.”