# Corporate Class Funds



## alisonb (Apr 3, 2009)

Our financial advisor is suggesting that we start investing some of our non-registered funds in corporate class funds instead of tradional mutual funds (one company he suggested that has them available was Fidelity). This is supposed to give us some tax advantages over traditional mutual funds. What are your thoughts regarding these funds?
Thanks,
Arlene


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## Jon202 (Apr 14, 2009)

What's the gain for your salesman, er.. advisor if you buy these funds? Did you ask about low fee index funds?


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## specialk (Jul 14, 2009)

Jon202 said:


> What's the gain for your salesman, er.. advisor if you buy these funds? Did you ask about low fee index funds?


I would also question if they even have the ability to manage mutual funds.


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## Robillard (Apr 11, 2009)

Hmm... I hadn't heard of these until now. I skimmed a globeadvisor article on them here: https://secure.globeadvisor.com/magazine-ccf/static/archives/issue1/rob_carrick.html

Apparently they offer the ability to switch between funds without triggering a taxable event. It comes at a price though. The MER for these funds is apparently about 20 to 40 basis points higher than a traditional mutual fund with identical holdings.


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## Doug (May 31, 2009)

The link that Robillard gives mentions an MER of 2.93% on a corporate class stock fund. Rob Carrick in the article mentions that if you are a buy and hold investor with a diversified portfolio, you don't need corporate class funds. With index funds/ETFs, you can pay no more than 0.5% in MER. Rob Carrick states that if you are more of a trader than a long term buy and holder, corporate class funds might be for you. However, with the difference in MER between corporate class funds and low cost index funds/ETFs, there are very few, if any, people who would come out ahead in corporate class funds compared to low cost index funds/ETFs.


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## leslie (May 25, 2009)

I would approach the question from another angle....customer manipulation.

A heck of lot that financial institutions do is geared to look as if it's in your own interest, but really it is in their's. 
* E.g. they provide chairs AND VERY STRONGLY DEMAND THAT YOU SIT in banks so that you cannot easily leave without signing on the dotted line. 
* E.g. they fill in all the form FOR YOU while it is turned away from you, and then only turn it around, WHILE KEEPING THEIR HANDS FIRMLY ON IT SO YOU CANNOT PICK IT UP, when they tell you to sign without reading.
* TD e-broker acccounts that lock you into buying their products.
* etc, etc, etc.

In this case what you get is NO FEES when switching fund. But really how big are the fees now? They were $40 a decade ago, they must be less now. So no big cost.

In exchange they ensure that your money STAYS IN THEIR OWN PRODUCTS. And that is a big deal for them.

I would refuse to buy these, on principle. Don't allow them to manipulate you.


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## humble_pie (Jun 7, 2009)

not only is the MER higher but there is a higher risk that's less visible behind all the legal prospectus language.

generally, the class will hold an interest in a derivative product only, which in turn is linked to the underlying basket of actual securities which are held by a counterparty.

it's this complexity in structure that helps to account for the higher fees.

but if the counterparty fails, pfffft goes the class.


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## fredp (Mar 11, 2010)

alisonb said:


> Our financial advisor is suggesting that we start investing some of our non-registered funds in corporate class funds instead of tradional mutual funds (one company he suggested that has them available was Fidelity). This is supposed to give us some tax advantages over traditional mutual funds. What are your thoughts regarding these funds?
> Thanks,
> Arlene



One benefit of the Corporate Class Funds is for incorporated professionals. If they invest excess corporate funds in these, they accrue capital gains, and can be removed from the corporation through the Capital Dividend Account in a very tax efficient way. (minimal or no taxable income until redeeemed, and then taxed as capital gains).

Can this be done via ETFs? i.e. which types of ETFs will appreciate with minimal taxable income and are pure capital gains upon redemption?


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## patmanz (Jul 26, 2010)

fredp said:


> One benefit of the Corporate Class Funds is for incorporated professionals. If they invest excess corporate funds in these, they accrue capital gains, and can be removed from the corporation through the Capital Dividend Account in a very tax efficient way. (minimal or no taxable income until redeeemed, and then taxed as capital gains).
> 
> Can this be done via ETFs? i.e. which types of ETFs will appreciate with minimal taxable income and are pure capital gains upon redemption?


sorry for bumping an old topic but i would also like to have information regarding this


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## Belguy (May 24, 2010)

Personally, I would recommend that you spend less time listening to your friendly, neighbourhood advisor and more time studying the model portfolios at www.canadiancouchpotato.com

And, keep your fees as 'little' as possible.

Buy, hold, and prosper!!

Note: Many advisors will not recommend low fee ETF's because they are not licenced to sell them.

Either you can keep the money in your portfolio or you can pay a lot of it out in fees that really add up year after year after year, ad nauseum.

And remembver that many advisors are primarily mutual fund salespersons.

If you use an advisor at all, make sure that he or she is a 'fee only' advisor who charges you for their time but does not receive ongoing renumeration from the products that they promote to you.


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## patmanz (Jul 26, 2010)

Belguy said:


> Personally, I would recommend that you spend less time listening to your friendly, neighbourhood advisor and more time studying the model portfolios at www.canadiancouchpotato.com
> 
> And, keep your fees as 'little' as possible.
> 
> ...


i politely told him to **** off, he came back with magical stories and wrong info but got me puzzled about the tax advantages of using corporate class funds.


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## HaroldCrump (Jun 10, 2009)

patmanz said:


> got me puzzled about the tax advantages of using corporate class funds.


Well, there _are_ tax advantages.
The problem is not that.
The problem is that you will not make any money with those funds to have a tax problem in the first place


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## patmanz (Jul 26, 2010)

I remember reading something about never deciding on a strategy solely for the tax advantages


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## uptoolate (Oct 9, 2011)

Any more thoughts on corporate class funds inside a corporation. Clearly they are of no value outside a corporation (unless you buy and sell like crazy) due to their high MERs. The question is whether there is a benefit inside a corporation where all income - whether interest or dividends - is taxed at a high rate on a yearly basis.


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## Eclectic12 (Oct 20, 2010)

fredp said:


> .. Can this be done via ETFs? i.e. which types of ETFs will appreciate with minimal taxable income and are pure capital gains upon redemption?


I have not thoroughly researched this type of ETF but I recall one name that's popped up in other CMF threads as being Horizon BetaPro's HXS. Zero distributions since 2010 likely means capital gains are triggered on the sale of units only.



> The Horizons S&P 500® Index ETF (“HXS”) seeks investment results, before fees and
> expenses, that correspond to the performance of the S&P 500® Index (Total Return) to the extent possible.
> 
> HXS is a tax-efficient way for Canadian ETF investors to get exposure to the S&P 500® Index (Total Return).


http://www.horizonsetfs.com/pub/en/etfs/?etf=HXS&tab=overview

The MER is listed as 0.15% with a maximum swap fee of 0.30%.


Note that you have to be comfortable with the swap structure.


Cheers


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## OptsyEagle (Nov 29, 2009)

uptoolate said:


> Any more thoughts on corporate class funds inside a corporation. Clearly they are of no value outside a corporation (unless you buy and sell like crazy) due to their high MERs. The question is whether there is a benefit inside a corporation where all income - whether interest or dividends - is taxed at a high rate on a yearly basis.


You are correct. The corporate class funds will have more of the income in the form of capital gains, with most of it deferred and very little distributed, so yes, it works very well in a corporation. It does not work all that bad personally, either, if you find yourself with a lot of non-registered money and in a high tax bracket.

I believe they hold a basket of funds in a corporate shell, with a wide variety of their funds (stock, bond, balance, you name it) under this corporate umbrella. Then they take those really bad performing funds ,every fund company has (ever wonder what happened to all those crappy mutual funds), with all those juicy capital losses they generated, and merge them into the corporate class structure. This allows them to write off those losses against your future capital gains. They use to be able to write forward contracts, as Humble Pie eluded to upthread, and that allowed them to magically change interest and dividends into capital gains and then right off the losses as I explained above, and PRESTO pretty much all the taxes would magically disappear. Jim Flaherty got wind of that last scam a couple years ago and smashed it into obliteration as quickly as he could, and now the forward contract scam has all but disappeared. So one should expect some dividend and interest distributions, but since they write off all the other funds expenses against them, the investor will likely receive very little of those, as well. In any case, the reduced capital gain scam is still working very well.

Keep in mind that although your ongoing taxes will be significantly reduced with corporate class funds, you are really just deferring them. As you make money in the funds, (I will leave the argument about that for another thread) you will be generating a deferred capital gain that you will have to address at some time. Also, as this passive form of assets grows in your corporation it will reduce your ability to ever use your lifetime capital gains exemption. So if you are planning on using that, you might want to look into purifying the corporation and increasing the ACB of your company before you build up all the passive assets.


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