21 Dec MUTUAL FUNDS: Corporate Class and Switch Funds
Mutual fund corporations have often been structured to permit changing funds within the group on a tax-free basis. These are commonly referred to as “switch funds” or “corporate-class funds”, and have become popular due to the ability to defer accumulated capital gains. Essentially, investors can switch funds without realizing dispositions and the related taxable capital gains.
However, new legislation has been proposed to end these deferrals commencing with exchanges on or after January 1, 2017.
Some exceptions exist, including switching between different series in the same class of shares representing the same underlying fund (for example, due to different commission or fee terms) and transactions where the underlying investment is unchanged, but shares are reorganized for other bona fide reasons (for example, changing voting rights or amalgamating funds).
Action Item: Consider rebalancing switch fund portfolios by December 31, 2016.
This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.