My wife owns units of NexGen Tax Managed Bond Fund for the past 3 yrs in her non-registered investment account. The idea for buying the fund, was to avoid claiming and interest/distributions from the fund, thereby keeping her investment income at a minimum. With her income at a minimum, I am able to recover more in my tax, as I am the sole income earner in the houehold.
I sold a portion (3000.00 moved to cash) of the bond fund earlier this year when I was doing some rebalancing - and I expect that amount to be claimed as capital gains by my wofe come tax time in March 2013. Am I correct in that assumption? I am trying to keep her income as low as I can to minimize the amount that I pay in tax)
I would like to sell more of it (maybe all of it) in the near future, as the MER for the fund is quite high (above 2%), and I would rather buy combinations of XSB, XBB and XCB that are cheaper - and likely perform just as well.
My question is: How would the sale of the bond fund units impact our tax position? (We have about 30,000 in the bond fund).
I'm not familiar with NexGen, but in general you would need to calculate the capital gain as the difference between the amount you sold the units and the amounts you bought it for (plus previously taxed reinvested distributions). Unless you got the units you redeemed for $3,000, for no cost, not all of it would be declared as a capital gain.
For example, if you originally bought the units in the fund for $27,000 and all of the distributions were retained in the fund, and not taxed in your wife's hands, your adjusted cost base would be the original $27,000. If you sold 10% of your units, then the net capital gain would be $3,000 - 10% of $27,000, or $300. Half of this amount would be included in income for your wife. I am assuming that you did not pay any commissions to buy and/or sell.
Be careful about attribution rules. You indicate that you are the sole income earner. If the money in your wife's non-registered account came from you, all of the gain may be attributed back to you!