The Oct. 1 deadline for the elimination of the tax-deferral benefit available in the corporate-class mutual fund structure should be extended by up to a year, the Toronto-based Portfolio Management Association of Canada (PMAC) recommends in a letter sent Wednesday to the federal finance minister.
The implementation delay is designed to ensure that “sufficient time is provided for investment fund managers and investors to transition and respond accordingly to the new tax measure,” PMAC says in the letter.
The Liberal government proposed in this year’s federal budget to eliminate tax-free switching between classes of funds held in a corporate-class mutual fund structure. With the change, such switches would be considered dispositions at fair market value for tax purposes.
Liberals kill tax benefits of corporate-class mutual funds
However, “detailed legislation regarding this new tax measure has not yet been released nor has the government elaborated on any technical aspects of the proposed change, including any commitment to implementing transition rules,” the PMAC letter states.
The release of transition rules would ensure “investors are equipped and informed of any decisions about their corporate-class fund investments, including triggering unplanned switches or other consequential actions such as redemptions or dispositions,” the letter states. “In addition, there are a number of operational and regulatory consequences to the investment industry in addition to costs and systems implications which can arise for investment fund managers and investors.”
Extending the implementation date by another six months would give the investment industry the necessary time to make a proper transition as well as communicate the changes to clients so that they could avoid potential negative impact, the PMAC letter states.
On the issue of pension reform, PMAC says it is “pleased that the government has prioritized federal and provincial discussions on the Canada Pension Plan (CPP), along with a review of the pension investment rules.” However, it expresses disappointment that the target benefit plan program or previous recommendations made in past submissions regarding RRSPs and GST/HST on investment management fees to were not included in this year’s budget.
PMAC notes in its letter that it “recommends that the government aim for targeted reforms rather than creating new or significantly altering or overhauling existing retirement programs, such as the CPP … We believe that minor enhancements to the CPP would be more desirable than Ontario’s plan to move ahead with the Ontario Retirement Pension Plan.”
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