# Unregistered Mutual Funds Transfer In-kind Possible? - Tax Consequences?



## peterk (May 16, 2010)

I have a employer-matched savings program at work that directs funds directly from my pay into an unregistered Sunlife investment account where I can select from several investment funds. Up until now I have simply been emptying the account regularly and using the funds to invest in my TFSA and RRSP through Questrade.

Now that my registered accounts are maxed I am considering letting this Sunlife account just accumulate the funds and invest for me in a low cost TSX index fund (0.09% MER). The total contribution from myself and employer are about $1000/month.

My question is: What happens down the road if I leave this employer, decide I no longer want the account with Sunlife, and want to transfer the funds out? Can I dispose of the Sunlife TSX comp. index fund with an in-kind transfer to a TSX comp. index ETF at a discount brokerage that will keep me from having to pay capital gains tax? Or is the situation that: because it's a specific Sunlife fund and not a stock or ETF traded on a stock exchange that I will be forced into a deemed disposition no matter how equivalent the investment transfer is and will be forced to pay capital gains tax?

If the latter, I'll probably just continue withdrawing the contributions and investing on my own. But if the former I am interested in growing the Sunlife fund because:

1) It's easy, automatic and already set up.
2) Low cost.
3) Keeps me regularly contributing to a broad diversified fund, and keeps my investing behaviour somewhat in check.. I seem to always end up buying high risk individual stocks that tank in my accounts at Questrade. This at least forces me to keep putting $1000/month into a well diversified TSX fund and not things like BTE and LRE :stupid:


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## Eclectic12 (Oct 20, 2010)

peterk said:


> ... My question is: What happens down the road if I leave this employer, decide I no longer want the account with Sunlife, and want to transfer the funds out?


Depends on the receiving broker ... if they will accept that particular MF for that particular company - there is no taxable event as it is a transfer of assets.

Problem is ... most employer contracted plans use MFs that are typically not accepted by discount brokers. Where the receiving broker won't accept it, the only way I've read of it being transferred is by selling for cash (taxable event) then transferring the cash.




peterk said:


> ... Can I dispose of the Sunlife TSX comp. index fund with an in-kind transfer to a TSX comp. index ETF at a discount brokerage that will keep me from having to pay capital gains tax?


By saying "dispose" - this means selling the SunLife fund, which is a taxable event. Whatever you do with the cash after, the taxable event has already happened.

By saying "in-kind", the transfer by definition is of the asset which means both ends of the transfer *have* to be the same asset.


So there can't be a change of asset - other wise, it is not an "in-kind" transfer.




peterk said:


> ... Or is the situation that: because it's a specific Sunlife fund and not a stock or ETF traded on a stock exchange that I will be forced into a deemed disposition no matter how equivalent the investment transfer is and will be forced to pay capital gains tax?


Transfers don't trigger at taxable event ... selling the fund does almost always does (exception is corporate class MFs).

What forces the taxable event on a transfer is where the receiving broker won't accept the investment in that account, regardless of where it trades. At that point, the only way to make the transfer is to sell as the receiving broker accepts what they accept or cash. 

If the employer/provider plan let me buy TD bank common stock then I try transfer "in-kind" to a TDDI Mutual Fund only brokerage account - I am going to have to sell which is a taxable event to make this happen. Where it or that TDDI offers a different account that would accept this transfer make no difference. 

[I realise the fix is easy for this one but this is intended to illustrate that the receiving account trumps "listing" or "company".]




peterk said:


> ... If the latter, I'll probably just continue withdrawing the contributions and investing on my own.


If it was me, I'd continue down this route and remind myself what it is targeted for (or setup some sort of automated buy just after the transfer).

Even if the MF used in the company plan today is accepted by the receiving broker - there is nothing that guarantees the employer/provider won't change what is offered or that the receiving broker change what the account accepts.


Cheers


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## peterk (May 16, 2010)

Thanks Eclectic. I thought that might be case. I don't know the nature of the funds specifically but it doesn't bode well for the new broker accepting an in-kind transfer because 1) It's a Sunlife fund (not for instance a BMO fund transferring to a TD fund) and 2) it's in an employer account and there may be some special arrangement that I'm unaware of that deems the fund non accepted from most brokers.

My word choice wasn't great but it seems you understood my meaning. When I said "dispose" I really meant "get the funds out of Sunlife (with an in-kind transfer) and close the account", when I said "deemed disposition" I really meant "forced taxable event".

I will take your advice and keep withdrawing and invest in a unregistered account that I have full control over at my broker that isn't linked to my employment.

Cheers,


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## Eclectic12 (Oct 20, 2010)

A BMO to TD account can have the same issues unless it's popular MF that the competitors are forced to carry.

That said ... since you mentioned Questrade, I checked the MF list where the web site says they 395 Sun Life MFs. Assuming Class D is the cheap version - there seems to be eleven carried.

I also find the labels confusing as one of the Sun Life MFs they carry is named:
SUN315-SUN LIFE BLACKROCK CDN EQ A LL

It seems odd to be buying a MF that charges 1.9% to turn around and buy a range of ETFs.


Cheers


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## Plugging Along (Jan 3, 2011)

I am actually going through similar exercise of moving my funds with my advisor potential to my self directed. 

I set up an appointment with TD and provided them all the funds I currently have. They are looking up each fund and seeing what they can do.

Some they were able to confirm that they can :
A..just transfer in kind without problem
B. transfer in kind, but only for liquidation. Meaning I will be able to seek when I want but not buy any more
C. Liquidate which triggers the gain.

Perhaps you can contact your self directed account and give them a list to have them tell you which ones you can move.


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## Eclectic12 (Oct 20, 2010)

If I understand choice B correctly ... one is able to transfer a MF the receiving broker won't let you buy/add to but will let you spread out the selling dates to smooth out the CG hit.

Or am I mis-understanding?


Interesting to hear of a new choice.


Cheers


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## Plugging Along (Jan 3, 2011)

Your interpretation of B is correct. However, there are some funds that will not allow that. I was able to get TD to look at the list of. Y funds, and confirm.


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