Managed Money Reporter Newsletter — Issue 118, November 1996


Editors: Carl Spiess & Allan McGlade



Cut An Extra $1,050 From Your Taxes With LSIFs!!!

Once again it is time to look at the simplest way to cut your tax burden. These are not complicated limited partnerships; we are talking about Labour Sponsored Investment Funds, and you should consider them for up to 10% of your investment portfolio.

What are LSIFs?

Labour Sponsored Investment Funds (LSIFs) are a unique investment vehicle sponsored by the Federal and Provincial governments. LSIFs are distinct in that they function as mutual funds, but are required to invest in small to medium sized Canadian businesses. Eligible businesses are Canadian companies or partnerships whose assets are less than $50 million, that pay at least 50% of employees' salaries in Ontario and do not have more than 500 employees.

LSIFs are considered slightly speculative in nature, but the greatest advantage is that they provide you with significant tax savings on your federal and provincial income tax. Another advantage is that if they are managed well, the venture capital investments in the portfolios have the potential for capital appreciation.

Labour Sponsored Investment funds offer substantial tax credits, in that you receive a tax credit of 15% from the federal government and 15% from the provincial government (to a maximum of $525 each per year). For investors purchasing LSIFs inside the RSP, these tax credits are 30% over and above your RSP deduction! The table below illustrates the difference between the average RSP contribution and the tax credits received when you purchase a Labour Sponsored Investment fund in the RSP. The information is based on an individual at the 50% tax bracket.

One word of caution, if you redeem the funds before eight years, you have to repay the 30% tax credits and any applicable redemption fees to the fund.

 Average RSPLSIF RSP
Investment$3,500$3,500
RSP Tax Refund$1,750$1,750
Federal Tax Credit-$525
Prov. Tax Credit-$525
Net Investment Cost$1,750$700

The number of Labour Sponsored funds available to investors has grown dramatically in the past few years. Initially, Working Ventures was the only credible fund, and to date has attracted $870 million in assets. However, with the federal budget of March 6th, several changes were announced for 1996 and beyond.

  • A reduction in the federal tax credit to 15% from 20%
  • A reduction in the maximum eligible from $5,000 to $3,500
  • An increase from 5 to 8 years on the minimum holding period required for new purchases
  • Ineligibility for new tax credits within 3 years of a LSIF redemption
As far as the actual funds are concerned, due to the Federal Budget changes and penalties levied on the funds, if they remain uninvested, several of the funds have closed off sales to new purchases. Those funds are: Working Ventures (closed since June, until further notice), and Sportfund. The Talvest Medical Discoveries Fund is limiting new purchases this RSP season to $100 million in new sales, and according to Talvest, they project sales into this fund will reach this level by January 31, 1997. As an alternate to the Canadian Medical Discoveries Fund, Talvest will be running a new LSIF - the Canadian Science and Technology Growth Fund which we recommend. Sales into this fund will be available, pending approval of the prospectus from the Ontario Securities Commission.

These changes are not surprising, and still make LSIFs an attractive tax savings investment ScotiaMcLeod sells several LSIFs.

To purchase any of the Labour Sponsored funds, or to make your RSP contribution early, please call (862-3035 or 1-800-387-9273) or e-mail us.

 



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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