Save tax on fund rebates

Zoomer | January 1st, 2006

If you buy back-end load funds and get a rebate on the commission, that amount is considered to be taxable income. But there’s a way to avoid paying any tax right away. You can file a special election with your tax return to have the rebate applied to reduce the cost base of the fund units you purchased.


There are two advantages to this, says the Investment Funds Institute of Canada (IFIC). First, you defer paying any tax on the rebate until you dispose of your units. Second, making the election effectively transforms the rebate from ordinary income (fully taxed) to a capital gain (75% taxed).


To take advantage of this election, just include a written statement with your return saying you intend to apply the rebate to reduce the purchase price of the units. This should be filed with the tax return you prepare for the year the rebate is received. So if you got a sales commission rebate in 1999, be sure to include this election when you send in your return. Remember that the filing deadline is April 30.


Mutual Funds Update is published monthly by Gordon Pape Enterprises Ltd.