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Federal budget 2017: only technical tinkering for investors
6/23/2017 9:53:29 AM
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By Knowledge Bureau  | Tuesday, March 28, 2017


 

TAX PLANNING FROM THE KNOWLEDGE BUREAU



By Evelyn Jacks

The March 22 federal budget contained only a few specific tax provisions of interest to investors, mostly of a technical nature. Here’s a summary:

Capital gains inclusion rates. Good news! There are no changes here! The 50% inclusion rate remains untouched in this budget for now at least.

Canada Savings Bonds. These investments will be phased out in 2017.

Mutual funds. Mutual funds can be structured in a trust or a corporation. Switch corporations are defined as mutual fund corporations with multiple classes of shares where each class is usually a distinct investment fund. Mergers of two mutual funds into a trust or from a trust to a corporation can be done on a tax deferred basis; this treatment will continue. However effective budget day, the reorganization of a mutual fund corporation into a multiple mutual fund trusts will also be allowed on a tax-deferred basis in respect of each class of shares, if all or substantially all of the assets in the class are transferred. Also, the shareholders must all be unitholders of the mutual fund trust.

Segregated fund mergers. Tax-deferred mergers will be allowed to parallel the mutual fund rules above for mergers after 2017. As well, for non-capital losses that arise in taxation years that begin after 2017, a segregated fund is able to carry over those losses and apply them to its taxable years that begin after 2017.

Derivatives. Timing of recognition of capital gains and losses will change. The value of derivatives comes from the value of an underlying interest, making its taxation complex. An election will allow taxpayers to “mark to market” all eligible derivatives. In addition, a specific anti-avoidance rule will target straddle transactions. A stop-loss rule will defer the realization of any loss on the disposition of a position up to the unrealized gain on an offsetting provision.

Anti-avoidance rules extended to RESPs and RDSPs. For transactions occurring after March 22, 2018, the anti-avoidance rules that currently apply to RRSPs, RRIFs, and TFSAs will apply to RESPs and to RDSPs. These rules include the advantage rules, prohibited and non-qualifying investment rules.

Where the plans currently hold what are now prohibited investments, planholders may elect by April 1, 2018, ordinary tax on investment income distributions rather than pay the advantage tax on such distributions.

Swap transactions will be allowed until the end of 2021 if undertaken to ensure that the plans comply with the new rules by removing investments that are now prohibited or give rise to advantages under the new rules.

Evelyn Jacks is the founder and President of Knowledge Bureau. This article originally appeared in the Knowledge Bureau Report, © 2017 The Knowledge Bureau, Inc. Reprinted with permission. All rights reserved. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.

Her latest book, Family Tax Essentials, is now available.

Notes and Disclaimer

©2017 by Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

 
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