Use umbrella funds to beat the taxman

A major impediment to switching from one fund to another outside a registered plan is the government’s view that any movement of assets from one mutual fund to another constitutes a sale and a purchase for tax purposes. This means that if your units have increased in value since you bought them, a switch will trigger a taxable capital gain. No one likes that idea, so as a result people tend to hold when they should move on.

To combat this, some companies, including AGF, C.I. AIM, Synergy and Clarington, have set up "umbrella" funds composed of different "sectors" or "classes" each with its own area of investment specialization.

Switching assets from one class or sector to another does not trigger a capital gain, because the transaction takes place within the single umbrella fund. So, for example, you could move from AIM Global Health Care Class to AIM Global Telecommunications Class without incurring a tax liability. But if you tried the same thing in funds that are not covered by this kind of umbrella, you’d be looking at a taxable gain.