The End is Near, Invest With Caution - Small businessess from 1 to 80 employees outsource your payroll management to us and let us worry about your payroll processing.
RSS Follow Become a Fan

Delivered by FeedBurner

Recent Posts

Tax changes to expect when you’re expecting
2016 Tax Tips for 2015 Filing Year
From Proprietorship to Corporation - When is the Best Time to Incorporate?
Tax Specialists Brief your Clients About CRA Fraud And E-Mail Scams
Bank of Canada cuts rates again

Most Popular Posts

Help your teenager build credit responsibly
Being an Executor of an Estate
Student Line of Credit
Principal Residence Exemption


aliko nutrition store- isotonix
aliko payroll services
canada revenue news and videos
canadian news
Cross border Tax
Disability awareness and Benefits for disabled
estate planning
Home Car Insurance
Income Splitting Strategies in Retirement
kids and money -set your children up for financial success
life insurance
on line safety tips
online safety tips
Real Estate - Investments / Retirement
Retirement planning
Save your money
small business planning
Tax Information for Students
tax news
tax planning
Tech news


January 2016
July 2015
May 2015
April 2015
February 2015
December 2014
November 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013

powered by


The End is Near, Invest With Caution

The End is Near, Invest With Caution
The End is Near, Invest With Caution
Written by Jim Yih
When I refer to the ‘end is near’, I am not referring to the end of the world or the bull market (as markets display extreme volatility). Rather, I am referring to the end of the calendar year.
As we approach the end of the year, it may be prudent to invest into mutual funds with caution. December is an important month for mutual funds because it is the month when many funds make their annual distributions.
All mutual funds are required to distribute the realized gains and profits of the fund before the end of the year. If you are a shareholder of a mutual fund outside the RRSP or a TFSA on the date that this distribution of profits is issued, you will have to pay tax on the profits. If you bought the fund late in the year, you will have to pay tax on the entire year’s distribution even though you only owned the fund for a short period of time. Purchasing the fund after the distribution will defer any taxes into the following tax year.
Not all funds have big year end distributions
The story is not that you should avoid making any investment decisions before the end of the year. Rather, the story is to be aware that some funds can have significant distributions (especially in years with strong growth) and these are the ones to avoid purchasing until the new year.
Some funds can have very significant distributions, while others have little to no distributions. Every fund has different distributions depending on a couple of factors. Firstly, distributions can result from funds that trade actively. Active trading may be a good investment strategy but it is not always a very good tax deferral strategy. Secondly, distributions are more likely to occur in funds that have had success in choosing winning stocks. When stocks are sold for big profits, the good news is you have great returns. Unfortunately, the bad news is you will have to pay tax on those profits. Investors are usually drawn to these funds with great performance.
If you are looking to invest before year end and you do not want to delay the investment, look for funds that have low distributions, low activity, issue distributions more frequently (like monthly or quarterly) or are new.
Mutual Fund companies can estimate the distribution
Usually at this time, the mutual fund companies are trying to get a grasp of the timing and amounts of the distribution. These calculations are only estimates and are subject to change before the end of the year.
As an example, let’s say you had $1000 invested in XYZ Mutual Fund which is going to have a distribution of $0.11 per share.  That means 11% or $110 would be taxed as income at your current marginal tax rate. Remember that the $110 of income may be capital gains, dividends or interest and that each of these have different tax implications.  The mutual fund company will issue a tax receipt showing the taxable amounts for the year and investors will have to add this income to their tax returns.
For investors who bought these funds late in the year, they have to pay tax on the whole about but will have a higher Adjusted cost base as a result which means they will pay less tax later when they sell the investment.  I know this can be confusing but tax has never been an easily understood topic so seek tax advice if needed.
Caution with GICs too
Avoiding year end investing into mutual funds might also apply to investing in interest bearing investments like GICs (outside the RRSP).
If you buy a GIC on December 15, 2013 you will have to report the interest in the 2013 tax year because the interest is generated on the anniversary of the GIC. If, on the other hand, you purchased that same GIC in the new year on January 1, 2014, you will not have to report the interest until the 2015 tax year, thus deferring the tax on interest by a full year.
Related article:  Advice for GIC investors
Combine all this information with tax loss selling strategies and you have a lot of confusion. If this stuff makes your head spin, consult your financial advisor or accountant for help.

1 Comment to The End is Near, Invest With Caution :

Comments RSS
Prince on November-27-13 5:53 AM
Thanks a lot dude for your wonderful planing for investment. Actually, I have plan for investing but now i am very happy to know the article which is very essential to me so, i must follow your discussion.
Reply to comment

Add a Comment

Your Name:
Email Address: (Required)
Make your text bigger, bold, italic and more with HTML tags. We'll show you how.
Post Comment