Tax woes

Q – I have incurred over $20,000 in capital gains over because mutual funds I own sold shares within the portfolio.   Also, some how I have also incurred about $5,000 in capital gains dividends (which I have not even heard of before).

My question is: How can I avoid these taxes next year?  The value of these same funds has depreciated even though all the funds are worth less than I paid for them and are back-end loaded. I am having to cash in investments to pay the taxes. – J.W.


A – Mutual funds normally make annual distributions in December and these are taxable when received outside a registered plan. This is especially annoying when the unit value of the fund has declined as in this case.


The way to avoid the problem is to choose funds with a record of paying little or no distributions for your non-registered portfolio. These would typically be funds with a buy-and-hold style – AIC is one group that spializes in this approach.


As well, ask your financial advisor to find out the distribution plans of the funds you own in November – many fund companies now release information of this kind in advance for tax guidance. If a large taxable distribution is planned, you may wish to switch assets elsewhere to avoid it. – G.P.