Your client, a high-income earner in a high marginal tax bracket, is seeking to minimize the amount of tax he pays on investment income while continuing to invest in mutual funds. Which mutual fund would best meet his investment objective?
Canadian equity funds are tax-efficient for high-income earners as they generate dividends and capital gains, which are taxed at lower rates than interest income. The feedback from the document states:
" Of the funds listed, the most tax-effective would be a Canadian equity fund because it should generate some dividends and some capital gains. Money market funds and fixed income funds would each generate highly taxed interest income, while a foreign equity fund would not generate tax-advantaged Canadian dividend income or capital gains. Before recommending an equity fund, the mutual fund representative should ensure that the fund is suitable for his client because equity funds have a higher risk profile than funds that generate interest income. "
[Reference: Chapter 6 – Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process, , , , ]
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