You Don'T Know Jack - Tax Advantaged Investing

For non-registered investments, the simplest way to increase the rate of return on your investments is to pay less tax on the income that is earned.

The calculation of your tax bill is based on the type of income earned; the most highly taxed income is interest income, followed by dividend income and finally capital gains. Ideally, you will want as much of your taxable income each year classified as either dividends or capital gains, as you will pay substantially less tax on these types of investment income compared to interest income.

One great and simple way to reduce and defer taxation is to invest in a class of mutual funds called “corporate class funds.” Several Mutual fund companies offer these types of funds.

What is Corporate Class?

In the simplest terms, corporate class funds are mutual funds that are set up as a corporation with multiple share classes that operate as separate funds. Since it is set up as a corporation, highly taxed income is offset by the corporation expenses, and any remaining income (if any) is distributed as capital gains or Canadian dividends. In addition, investors can switch between corporate class funds within without triggering a capital gain.

The corporate class structure offers five key benefits:

1. Ability to receive tax-efficient capital gains or Canadian dividends while invested in a diverse portfolio that produces a mixture of interest, foreign income, Canadian dividends and capital gains
2. Switch among pools without tax consequences (Section 51(1) of ITA)
3. Ability to grow assets by deferring taxes
4. Ability to better control when taxes are paid
5. Opportunity to withdraw funds on a tax deferred basis using return of capital 
pools. (T-Class)

How can Corporate Class Funds be used?

Corporate class funds can effectively be used to:

• Minimize or eliminate annual distributions.
• Receive tax-efficient capital gains or Canadian dividends from traditional 
income funds.
• Rebalance your portfolio on a regular basis without triggering capital gains or 
losses.
• Potentially lower your taxes, because you can defer them and choose when to 
realize Capital gains.
• Preserve or increase income-tested government benefits.

Who could use corporate class funds?


Any investor with non-registered assets should consider Corporate Class investments, especially if you:

• Have maximized your tax free savings accounts.
• Have maximized your RRSP contributions.
• Are retired and wish to avoid claw backs to your Old Age Security or other 
income-tested government benefits.
• Wish to set up tax effective income from your investments.
• Have a corporation with investable assets (tax effective for investments 
held within a corporation).


Using corporate class funds is a simple but elegant way to reduce and defer taxation. If you are investing outside of your RRSP/RRIF or TFSA, you should consider investing in Corporate Class mutual funds.

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus and consult your Assante Advisor before investing.

Contributed by Jack Lumsden, MBA, CFP, Senior Financial Advisor, Assante Financial Management Ltd.

www.jacklumsden.com 905.335.2598 or 888.588.0777