This time last year, many had already heard about the Ontario Government’s plan to phase out provincial tax
credits for Labour Sponsored Investment Fund (LSIF) purchases, starting in 2008. The plan to eliminate the provincial
tax credits entirely by the end of 2010 has not changed over the past 12 months. However, changes to the Federal
government and a Provincial election later this year have given some industry experts reason to believe that good
things may lay ahead for this sector. Clearly, time will tell.
As things stand today, investors are still able to choose from among almost 100 LSIFs and receive a 30-35% tax
credit (up to $5,000 maximum). Federal and provincial governments provide these credits because they hope that these
funds, which invest in small companies, will stimulate research and development and/or create high quality jobs in their
jurisdictions. Individuals can apply tax credits against 2006 income if the investment is made by March 1st, 2007.
Over the past few years, we have seen several smaller fund companies in this sector feel the strain of a competitive
marketplace, combined with the reality of the provincial plan to eliminate the tax credits, as mentioned above. This
has lead to a shrinking competitive environment and, in some cases funds have been forced to freeze redemptions
temporarily.
We continue to feel that the possibility of further consolidation in this sector should dictate caution in fund
selection. Not all LSIFs are the same, and depending in which province you reside, there may be restrictions on
eligibility.
Of the funds available, we do feel comfortable recommending several of the larger participants in the LSIF industry,
as they have consistently offered a diverse range of products for our clients and have shown resilience amidst recent
legislative announcements. Please
contact your ScotiaMcLeod Wealth Advisor
to discuss which LSIF might be right for your personal situation.
More on labour sponsored funds
Important LSIF Facts
Many specialty LSIFs qualify as a Research Oriented Investment Fund to be eligible for an
additional 5% Ontario tax credit for a total of 35% in tax credits at the federal and provincial level.
After your 5 or 8 year holding period for your fund has
expired, you can redeem and repurchase your fund, and get the tax credits
all over again. See the rules for more
details. We regularly mail to clients who have shares eligible for
redemption to let them know about their rollover options. You may
want to review your accounts to see if you will have holding period(s)
ending in the near future and plan accordingly. Please
contact your ScotiaMcLeod Wealth Advisor -
he or she would be glad to review your funds with you.
The LSIF purchase does not have to be made with new
money. Existing assets in your RRSP or non-registered account can be used
to purchase a Labour fund.
Not all provinces offer tax savings for LSIF
investment. This information is intended for Ontario residents.
Commissions, trailing commissions, management fees and
expenses all may be associated with mutual fund investments. Please read
the prospectus before investing. The indicated rate(s) of return is (are)
the historical annual compounded total return(s) including changes in
(share or unit) value and reinvestment of all (dividends or distributions)
and does (do) not take into account sales, redemption, distribution or
optional charges or income taxes payable by any security holder that would
have reduced returns. Mutual funds are not guaranteed, their values change
frequently and past performance may not be repeated. See
more disclaimers ...
The information contained on this website is for use by persons resident in Canada only.
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