Taking the guesswork out of portfolio management - PowerPoint PPT Presentation

1 / 51
About This Presentation
Title:

Taking the guesswork out of portfolio management

Description:

Title: Taking the guesswork out of portfolio management Author: Louise Guthrie Last modified by: delinic Created Date: 5/1/2003 2:55:41 PM Document presentation format – PowerPoint PPT presentation

Number of Views:198
Avg rating:3.0/5.0
Slides: 52
Provided by: LouiseG5
Category:

less

Transcript and Presenter's Notes

Title: Taking the guesswork out of portfolio management


1
Segregated Funds Mutual Funds A Taxation
Comparison
Enter Name Enter Title Enter Date
2
Agenda
  • Segregated Funds Mutual Funds a taxation
    comparison
  • Distributions in a down market
  • Taxation of guarantee top ups

3
Similarities
  • Fund manager buys and sells securities
  • Unit value fluctuates with the underlying
    securities

4
MORE Similarities
  • Fund distributes all taxable income and capital
    gains realized to unitholders
  • Interest, dividends, capital gains flow through

5
Differences
  • Treatment of capital losses realized by the fund
  • All taxable amounts reported on T3 for segregated
    funds

6
MORE Differences
  • Distributions versus allocations
  • Change in unit value after distributions and/or
    allocations

7
Treatment of Capital Losses
8
In a mutual fund
  • Gains 2,000
  • Losses 3,000
  • Distribution to investor 0
  • 1,000 losses carried forward by the fund

9
In a segregated fund
  • Gains 2,000
  • Losses 3,000
  • Allocation to investor 2,000 gain 3,000
    loss
  • 1,000 losses carried forward (or back) by the
    investor

10
Redemptions
11
Disposing of units before the distribution date
  • Mutual Funds
  • Does not receive distributions
  • Capital gain/loss realized on disposition is not
    shown on the T3

12
Disposing of units before the distribution date
  • Mutual Funds
  • Investor must calculate gain/loss and report on
    tax return

13
Disposing of units before the distribution date
  • Mutual Funds
  • Fund reports details of disposition to CRA on
    T5008

14
Disposing of units before the allocation date
  • Segregated Funds
  • Allocation realized as of the date of disposition
  • Capital gain/loss realized on disposition is
    shown on T3

15
Disposing of units before the allocation date
  • Segregated Funds
  • Acquisition fees are deemed to be capital losses
    and are also reported on a T3

16
Distribution and/or Allocation
17
Mutual Fund distributions
  • Must actually distribute income capital gains
  • Investor can choose to receive distribution in
    cash or reinvest in funds

18
Mutual Fund distributions
  • If reinvested, the investor is deemed to have
    received the cash and then purchased additional
    units

19
Segregated Fund allocations
  • Deemed to have distributed no need to actually
    pay it out thus allocation
  • No additional units are purchased

20
Segregated Fund allocations
  • Allocations cannot be paid in cash like
    distributions (must request withdrawal)

21
The tax impact
  • Both methods are ways to pass tax liability from
    fund to investor
  • Does not affect fund returns or tax payable
  • Both first reduce the distribution and/or
    allocation by the expenses of the fund in the
    order of the highest type of taxable income

22
Changes in unit values
23
In a mutual fund
  • Unit value decreases after a distribution

24
In a mutual fund
  • The purchase of additional units returns each
    investor back to the original total value held
    before the distribution

25
In a segregated fund
  • Unit value remains the same after the allocation

26
Distribution vs. Allocation
(100 x 5)/45 45X11
27
Mutual Fund investors perception
  • They received extra units equal to the taxable
    amount
  • REALITY they traded in a dime for two nickels

28
Segregated Fund investors perception
  • They only get the tax slip
  • REALITY and they get to keep the dime

29
Distribution timing is everything
Investor A Investor B
Date Dec. 28 Jan. 2
Investment 5,000 5,000
Unit value 50 45
units 100 111
Dec. 31 distr. 5/unit -
Unit value on Dec. 31 45/unit -
New units 11 -
Market value 5,000 5,000
Taxable income 500 -
(100 x 5)/45
30
Common questions
  • Why is there tax to pay when my value has gone
    down?
  • Manager often forced to sell some stocks
  • Unrealized gains become taxable when underlying
    investments are sold

31
Common misunderstanding
  • Dont confuse fund value with taxable income
  • Taxable income applies to the investor or fund
    manager activity

32
Investor activity an example
  • Investor buys 100
  • Investor sells 180
  • Investors capital gain equal to 80

33
Fund manager activity an example
  • Fund manager buys at 60
  • Investor buys at 100
  • Value of the investor purchased units decreases
    to 70
  • Fund manager sells at 70
  • Capital gains distributed of 10

34
Taxation of Guarantee Payments
35
Top ups Registered contracts
  • Taxable as RRSP/RRIF income when it is paid out
    of the contract

36
Top ups Non-registered contracts
  • Taxable as capital gain when paid

37
Top ups Non-registered contracts
  • Capital losses, if applicable, will be applied
    against capital gains

38
Lets look at an example
  • Non-registered
  • 1. Initial investment 100,000
  • 2. Guarantee 100,000
  • 3. Market value 80,000
  • Top-up gain (3-2) 20,000
  • Capital loss (3-1) (20,000)
  • Total taxable amount 0

39
Lets look at another example
  • Non-registered
  • 1. Initial investment 100,000
  • 2. Guarantee 140,000
  • 3. Market value 130,000
  • Top-up gain (3-2) 10,000
  • Capital gain (3-1) 30,000
  • Total capital gain 40,000

40
Mutual Fund Corporations (Manulife Corporate
Classes)
41
Tax efficiency
  • Interest Foreign Income
  • Ordinary Dividends
  • Capital Gains Dividends

42
Tax efficiency
  • Corporations investing in Corporations
  • Tax free fund switches

43
Interest Foreign Income
  • A number of expenses, deductions are first
    applied against this type of income
  • Balance, if any, taxed within the corporation
  • Taxes may be reduced by foreign tax credits, if
    any
  • After-tax earnings may be distributed as ordinary
    dividends

44
Ordinary Dividends
  • Flow through to shareholders
  • Grossed up with dividend tax credit

45
Capital Gains Dividends
  • Reduced by capital losses of all share classes
  • Reduced by CGRM for those leaving Corp

Capital Gains Refund Mechanism
46
Capital Gains Dividends
  • Balance flows through to shareholders
  • Treated as capital gains

47
Tax-Free Fund Switching
  • Each fund is a class of shares of a multi-class
    Mutual Fund Corporation
  • Moving between share classes (funds) doesnt
    trigger tax to investor
  • However, liquidation of underlying assets to do
    the transfer may cause flow through of capital
    gains dividends
  • Cant offset taxable gains with CGRM for those
    who havent left corporation

48
Taxation of Manulife Corporate Classes
  • Proactive Tax management
  • Tax expert assigned
  • Tax-free, DSC-free switching between multiple
    managers

49
Educate your clients
50
Important notes
Manulife Funds and Manulife Corporate Classes are
managed by Manulife Mutual Funds, a division of
Elliott Page Limited. Manulife Investments is
the brand name identifying the personal wealth
management lines of business offered by Manulife
Financial (The Manufacturers Life Insurance
Company) and its subsidiaries in
Canada. Manulife and the block design are
registered service marks and trademarks of The
Manufacturers Life Insurance Company and are used
by it and its affiliates including Manulife
Financial Corporation.
51
(No Transcript)
Write a Comment
User Comments (0)
About PowerShow.com