Corporate class mutual funds provide tax benefits compared to traditional mutual funds. Investments within a corporate class structure are treated as a single entity for tax purposes, allowing investors to rebalance portfolios without immediate tax consequences. Distributions from corporate class funds are more tax-efficient, consisting primarily of capital gains and Canadian dividends taxed at a lower rate than regular income. This tax treatment leaves more money growing in the investor's account compared to traditional mutual funds. Corporate class is suitable for individual investors with non-registered funds who seek tax-efficient rebalancing and cash flow in retirement.
2. Many of Fidelity’s most popular mutual fund trusts are also offered
as corporate class investments.
What’s the difference? investment remains at its original purchase price
regardless of the rebalancing activity and the related
While corporate class funds may hold the same types capital gains are only realized when the corporate
of investments as the traditional mutual fund trust class shares are redeemed or sold.
versions (directly or indirectly), class funds are held
inside a mutual fund corporation, which provides By contrast, any rebalancing activity between tradi-
additional tax benefits for investors. Although each tional mutual fund trusts can result in an immediate
corporate class fund within the corporation has its taxable event. Any resulting capital gains will be
own investment objective and strategy, together taxed in the year in which they are realized. In this
they are treated as a single entity for tax purposes. case, the investor’s ACB increases and is reset to the
new purchase price.
How does corporate class provide 2. Tax-efficient growth
tax benefits?
Pooling income and expenses: In a mutual fund
A mutual fund corporation is a single legal entity. corporation, the income and expenses of all of the
Instead of taxing each individual mutual fund within different mutual fund classes are pooled, rather than
the corporation, the corporation as a whole is taxed. being managed and reported separately.
The resulting tax benefits are often referred to as As a result, corporate class mutual funds can share
“tax efficient” or “tax smart.” While they may not income, gains, losses, expenses and loss carry-
reduce the tax paid in every situation, they do allow forwards to reduce taxable distributions generated
investors to organize their investments to increase by the corporation as a whole.
the potential for tax savings.
Distributions: When distributions are made, they
tend to be more tax-efficient than distributions
1. Tax-efficient rebalancing
from traditional mutual funds. Corporate class funds
When investors sell traditional mutual funds, cannot distribute income.1 They can only distribute
they must pay tax immediately on any gains. But Canadian dividends and capital gains dividends,
corporate class funds are all held within the same both of which are taxed at a more favourable rate
corporation, so investors can move their money than regular income. Corporate class funds are not
from one class fund to another class fund without obliged to make distributions if they are not in a
triggering any immediate tax consequences. taxable position, but they may choose to do so
Benefit: With corporate class funds, investors can in order to maintain the long term viability of the
rebalance their portfolios or change their invest- corporation.
ments without immediate tax consequences. That Benefit: Taxes are minimized or deferred, leaving
leaves more money in an investor’s account to grow. more money in an investor’s account to benefit from
Each time the asset allocation is reset, rebalancing compound growth. From a tax point of view, this is
within the corporate structure will not trigger any clearly preferable to holding a fixed-income mutual
capital gains. The adjusted cost base (ACB) of the fund, which pays interest income that is taxable at
an investor’s marginal tax rate.
3. tax-smart investment solutions
3. Tax-efficient cash flow Trust accounts
Corporate class investments can be combined with ■■ Corporate class provides the same tax-efficient
Fidelity Tax-Smart Withdrawal Program™ (Fidelity benefits for those who may want to create trust
T-SWP™ Class) for even greater tax efficiency. T-SWP accounts for children or grandchildren.
Class provides cash flow by returning an investor’s ■■ Generally, parents or grandparents are taxed on any
original investment principal in a return of capital. This returns received before the child claims the trust.
amount is not taxable, because the investor already However, corporate class has the potential to reduce
paid tax on it before the investment was made. distributions, thereby minimizing the potential tax
A return of capital will reduce the ACB of class fund burden before the beneficiary reaches maturity.
shares held. Once all of an investor’s capital has been
returned, the subsequent cash flows will be treated as Seniors
capital gains and taxed at a favourable rate. ■■ Corporate class combined with T-SWP provides
seniors with tax-efficient cash flow.
Benefit: Investors can receive tax-efficient cash
flow without having to sell investments, meanwhile ■■ It may be especially helpful in reducing or elimi-
deferring capital gains. nating Old Age Security (OAS) clawback. Since
T-SWP Class payments – at least in the initial
years – are return of capital, they are not consid-
Who should invest in corporate class ered income for tax purposes. (The corporate
mutual funds? class funds may pay Canadian dividends and
capital gains dividends from time to time.) By
Individual investors
supplementing income with return of capital,
Corporate class funds are an attractive option for pensioners can get added spending power while
investors with non-registered investments, including keeping taxable income down – thus maximizing
those who OAS payments.
■■ h
ave used up their RRSP and TFSA contribution Fidelity offers over 100 investment options in its
room corporate class structure to assist your advisor in
■■ seek a steady stream of cash flow in the future or constructing a portfolio for you according to your
in retirement (using T-SWP Class) investment objectives, suitability and time horizon.
■■ rebalance their portfolios on a tax-deferred basis And all our products are backed by our leading
investment process, with solutions to suit almost
Owner-managed corporations every risk profile.
■■ Corporate class may provide a more tax-efficient
option for after-tax profits held in a corporation
than other commonly used vehicles. For more information,
■■ Corporate class can also help fund a corporation’s talk to your financial advisor.
capital dividend account (CDA), which may facili-
tate the payment of non-taxable dividends from Visit fidelity.ca
the corporation to its shareholders. (For more
information, see Fidelity’s tax-smart solutions bro-
chure entitled “Capital Dividend Account.”)
