Managed Money Reporter Newsletter — Issue 165, November 2000


Editors: Carl Spiess & Allan McGlade


Featured Articles



Labour Sponsored Investment Funds (LSIFs)

Once again it is the time of year to start looking towards the upcoming tax season. If you are looking for ways to lower the amount of Income Tax you have to pay, maximizing your RRSP contributions for the year 2000 should always be your first choice. If you have already reached your limit for this upcoming year, or if you are looking to get the maximum deductions from your 2000 RRSP contributions, Labour Sponsored Investment Funds (LSIFs) are worth considering. For the long-term investor, LSIFs not only reduce your total income tax payable, they may also provide above average returns and an avenue for further diversification with respect to your investment portfolio. Also, they provide an opportunity to participate in Initial Public Offerings (IPOs) normally not available to most Canadians.

What is a Labour Sponsored Investment Fund?

A Labour Sponsored Investment Fund (LSIF) is similar to a mutual fund, where individual investors pool their money, allowing professional investment managers to make decisions on their behalf by investing in several different companies, thus reducing their overall investment risk. An LSIF differs from traditional mutual funds in that it is a venture capital fund that invests in small and medium-sized Canadian businesses – public and private, therefore the inherent risk is slightly higher. In return for creating jobs and promoting economic growth through your investment in these companies, the government provides a tax credit of 30% of your investment amount up to $5000. When we consider that over 99% of Canada's businesses operate with less than 500 employees, we can see that small business plays a significant role in the Canadian economy, and it is these same small companies who turn to Labour Sponsored Venture Capital Corporations for their financing needs.

The Time is Now!!

ScotiaMcLeod offers self-directed and mutual fund Registered Education Savings Plans. Contribute before December 31, 2000 to get a 20% government grant and to take advantage of tax deferral outside of an RRSP. 

Call us at 1-800-387-9273 or visit our RESP page for more information.

Diversification & Choice through LSIFs

Apart from the attractive tax reduction and 
increased foreign content room advantages, 
LSIFs now offer investors a method of 
diversification in their portfolios by offering 
various ‘Sector Specific' funds, 
predominantly through the technology 
sector. With funds specializing in areas 
such as Internet, E-Commerce and Medical 
Science, investors can gain exposure in these sectors through these LSIFs while reducing the overall risk through mutual fund investing and the 30% tax credit. With Canada's e-commerce market expected to grow to over $80 billion in 2003, and over 65% of Canadians to be on-line, LSIFs geared towards Internet companies become quite attractive. As with traditional mutual funds, Labour Sponsored Investment Funds have evolved over the last decade to provide options for investors not only through investment choice, but now investment risk. For the aggressive investors there are the sector specific LSIFs. Whatever your investment approach, there is a Labour Sponsored Investment Fund suited to your preference (see insert).

Key Benefits of Labour Sponsored Investment Funds

Investing in a Labour Sponsored Mutual Fund inside an RRSP brings to the investor several key benefits that traditional mutual funds may not. These are:

  • The potential for above average returns by investing in small and medium sized Canadian businesses - public and private (see insert )
  • A 30% Tax Credit on the amount purchased to a maximum of $5000.00 (minimum $500)
  • An increase in Foreign Content room 
  • Sector specific exposure (i.e. E-commerce, Medical Science) while reducing overall risk through the 30% tax credit and professionally managed mutual fund investing

Benefit from Substantial Tax Savings when purchased in an RRSP

Do You Qualify For a Rollover ??

If you currently hold shares in an LSIF purchased before March 5th, 1996, you can elect to ‘Rollover' these shares into the same LSIF or another one of your choice and re-claim tax credits for the 2000 tax year if instructions are received before the end of February. For our investors who qualify for this rollover opportunity, you will be contacted shortly with options and instructions. For those who participate, this rollover will occur, in the last days of RRSP season (end of February/ early March) instructions must be received prior to this time.
If you wish to redeem your units prior to the designated rollover period, both the federal and provincial tax credits will need to be returned.

Purchased after March 5th, 1996
Units must be held for 8 years for ALL shareholders, or repayment of the tax credits will apply.

To reward the investor for taking on this 
additional risk, both the Federal and 
Provincial Governments offer favorable tax 
benefits in the form of tax credits. When 
you purchase an LSIF, you receive both a
15% Federal and 15% Provincial Tax 
Credit on top of your RRSP contribution 
benefit.

For Example: (Assuming a $5000 RRSP
 Contribution with an LSIF Purchase)

LSIF Investment $5000
15% Federal Tax Credit $750
15% Provincial Tax Credit $750
RSP Tax Savings (@50%) $2500
_____
Total Tax Savings $4000

Increase Your Foreign Content Limit 

LSIFs held in an RRSP may result in increases in foreign content room above the usual 25% limit. A larger foreign content position provides for added diversification and the potential for greater returns from exposure in larger foreign markets. The additional foreign content that is permitted is 3 times the book value of the LSIF assets in your account, to a maximum of 45% of your plan's overall book value.

For Example:

Suppose you purchase $5,000 of a LSIF in 2000 in an existing RRSP account with a total book value of $20,000:

  • Pre-LSIF Foreign Content Limit = 5000 (25% of book value i.e. 25% of $20000)
  • Additional Foreign Content Room with $5000 LSIF purchase = $15,000 ($5000 x 3)
  • Maximum Foreign Content capped at 45% = $9000 (45% of $20000)

Note: Maximum foreign content will be capped at 50% after January 1st, 2001 (30% pre-LSIF adjustment).

For a complete overview of the LSIFs available to you, refer to the handy insert. For more information, please call our Service Centre at (416) 863-7777 or 1-800-387-9273 or visit our LSIF page.

Fund News

  • As previously announced, Trimark Financial Corporation has recently merged with London based AMVESCAP, parent company of AIM group of funds. Switches are now available between the two fund families. Please note also that the fund codes for the Trimark funds have changed.
  • Atlas Asset Management (a brand of Merrill Lynch mutual funds) have renamed their funds to include Merrill Lynch as the brand name.
  • Scudder Maxxum is changing its name back to Maxxum.
  • Dynamic has announced that they will be merging the following funds, pending approval.
    • Dynamic Global Income & Growth with Dynamic Global Partners Fund
    • Dynamic Power Cdn Fund with Dynamic Power Cdn Growth
    If approval takes place, the funds should be merged at the end of November.

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

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