How much do you know about financial independence?

Focus. Dog knees.

You really want an opinion?

New rules about how your mutual funds must report fees and performance. Please read and understand your reports. I know ten years ago I simply skimmed over them and said thanks. Cost us several thousand in DSCs we didn't know were avoidable. You dont want to discover about DSCs when you've grown your stash to have tens of thousands like this guy!

http://www.cbc.ca/beta/news/business/investment-fees-crm2-1.3908932

http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/investor-protection/Pages/Cost-and-performance-rules.aspx#.WGkuA4Y77CQ

Ok, newb question here regading CRA [HTML_REMOVED] tax on savings income.
Let's keep this really simple to start…
Say I have 10,000 siting in a bank account earning interest @ 5%. It's not in an RSP or TFSA.

I'd earn 500 in interest. Let's assume I pay 20% tax. So CRA would take 100 of that 500 interest I earned. Agreed?

So what happens if that 10000 is actually in mutual funds and the value varies thru the year. Say it went up from 10k to 15k from start to end of year.
Now, I'm not cashing in, and that 15k rolls over to next year so I don't have any income as such.
Would I pay any tax now, or would tax only be due when I cash in?

If I pay tax now, what happens in the scenario when the value of mutual funds drops over the year?

(For now, assume Im just a regular joe with a regular job paying regular taxes without any additional complications and im not actually trying to minimise my tax. Im just trying to figure out basic methodogy without RSP/TFSA complications)

^^ tax is due when you sell the mutual fund and realize the gain.

You don't pay taxes on your mutual funds until you actually sell. And capital is taxed at a more favourable rate than interest. So in your hypothetical situation, if you buy your fund at 10k and sell for 15k, you have a gain of 5k. But you only pay tax on half that. So you pay $2500 times your tax rate.

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Hmm, interesting!
Does that mean they don't need to be declared to CRA until sold? Or does CRA need to be kept informed that you own mutual funds? If so, anyone know which form to use?

Hmm, interesting!
Does that mean they don't need to be declared to CRA until sold? Or does CRA need to be kept informed that you own mutual funds? If so, anyone know which form to use?

You don't have to declare your holdings. But you'll most likely receive a T-slip with some information you are required to report.

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You don't have to declare your holdings. But you'll most likely receive a T-slip with some information you are required to report.

Ah, now this is where it gets more complicated…are the rules the same when the mutual funds are held and managed off-shore (UK, in my hypothetical case)?
In the UK, they would be held tax free in an ISA (equivalent to a TFSA…) but I'm not sure whether they would be subject to Canadian tax

http://www.finiki.org/wiki/Tax-efficient_investing

Interest is taxed at your income tax rate.

Qualified Canadian Dividends are taxed at a preferred rate, even negative rates in some cases.

http://www.finiki.org/wiki/Dividend

Capital gains are taxed when you sell.

http://www.taxtips.ca/personaltax/investing/taxtreatment.htm

All of this is irrelevant in your TFSA - theoretically, no Canadian resident over 18 should be invested in a taxable savings or investing account before thier TFSA limit is maxed.

Ah, now this is where it gets more complicated…are the rules the same when the mutual funds are held and managed off-shore (UK, in my hypothetical case)?
In the UK, they would be held tax free in an ISA (equivalent to a TFSA…) but I'm not sure whether they would be subject to Canadian tax

Not a tax guy, and you need to talk to an accountant if you have international tax needs, especially investments. But I believe international personal tax shelters are not usable in Canada, i.e. those investments would be treated as any other non-registered investment and you will pay capital gains tax when you sell the funds. The other thing to keep in mind is funds may kick off annual income (dividends, interest, return of capital) which all have current year implications if held in non-registered accounts.

Not a tax guy, and you need to talk to an accountant if you have international tax needs, especially investments. But I believe international personal tax shelters are not usable in Canada, i.e. those investments would be treated as any other non-registered investment and you will pay capital gains tax when you sell the funds. The other thing to keep in mind is funds may kick off annual income (dividends, interest, return of capital) which all have current year implications if held in non-registered accounts.

I've being doing a bit more research and it appears that there is a reporting requirement if the value of foreign held "property" exceeds $100,000 (mine is currently around $27k, so nowhere near that amount!)

http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/frgn/1135_fq-eng.html#h1

I'm reluctant to shell out for specific advice on this, as it seems pretty straight-forward to me but maybe you guys can see something I can't? If so, I'll look into getting some specific tax advice….

Incidentally, in theory I could move this money from the UK to Canada and then put it in a TFSA but (a) it seems I would have to pay tax to CRA when I cash it in and (b) the UK:CAD exchange rate is not favorable at the moment.
Plus, there's also I chance I may need to move back to the UK at some stage so I'd rather have some funds over there…

You don't pay taxes on your mutual funds until you actually sell. And capital is taxed at a more favourable rate than interest. So in your hypothetical situation, if you buy your fund at 10k and sell for 15k, you have a gain of 5k. But you only pay tax on half that. So you pay $2500 times your tax rate.

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oh, not at all true my friend. if you own a MF outside a registered account, you will pay some investment income taxes each year. as a flow through trust, most fund unit holders will have to participate in the taxes owed on the securities bought and sold (and held) buy the fund managers on your behalf. if there are bonds in the fund, interest income will be earned and taxes owed on that. if dividends, taxes there and if any securities were sold for a gain (and this is always the case). of course it's proportionate to how many units you hold. you will get a T5 tax slip showing boxes for interest, dividends and cap gains. you have to enter these into your income tax and pay the piper. just as if you owned the securities yourself. that's where the corporate class mutual fund structure has an advantage. different thread…