[LIII1940]

Looks like the HST will add an extra 8 per cent
to management fees on Mutual Funds !
With funds being taxed at effectively at four to five times the rate of other
savings vehicles such as guaranteed investment certificates, term deposit
and stocks.

Does anyone have any ideas to avert this tax grab !
I know the simple answer is not to be in mutual funds, but I wonder how many people know how badly they will be effected if they don't take action?

 

[Robillard]

Looks like the HST will add an extra 8 per cent
to management fees on Mutual Funds !
With funds being taxed at effectively at four to five times the rate of other
savings vehicles such as guaranteed investment certificates, term deposit
and stocks.

Does anyone have any ideas to avert this tax grab !
I know the simple answer is not to be in mutual funds, but I wonder how many people know how badly they will be effected if they don't take action?

Investors won't feel the additional tax on the fund fees because fund companies will take it from the fund instead of billing the investors. The tax will be reflected in slightly lower fund returns. Also, the tax is on the fund management fees, not on the income, dividends or capital gains generated by the funds. This will make funds slightly less attractive investments, but it's no reason to jump into holding a portfolio of stocks and bonds directly if you don't have enough capital.

 

[HaroldCrump]

Does anyone have any ideas to avert this tax grab !
I know the simple answer is not to be in mutual funds, but I wonder how many people know how badly they will be effected if they don't take action?

The action I am going to take is not to vote for the current Govt. come next provincial elections.
I am powerless to do anything more - but I have the prerogative to not vote for this govt and instead vote for the opposition and I fully plan on exercising that option.

 

[markham]

this may ease your mind a bit for ontarians anyway (but i wouldn't hold your breath):

http://www.advisor.ca/advisors/news/product/article.jsp?content=20090930_102615_8108

i guess we'll have to wait and see what happens.

 

[yupislyr]

That story is over a month old.

They've already said no to exemptions for funds.

http://www.theglobeandmail.com/repo...-blow-to-mutual-fund-industry/article1361486/

 

[markham]

That story is over a month old.

They've already said no to exemptions for funds.

http://www.theglobeandmail.com/repo...-blow-to-mutual-fund-industry/article1361486/

good news , thanks for the update.

 

[Aolis]

It would be good if the tax brought to people's attention how much they are paying in management fees on their mutual funds.

 

[nauru]

I have no idea why anyone would ever buy a Canadian mutual fund. Ever. I mean you've got idiots running these things and charging over 200-250 basis points for absolutely no value added at ALL.

There are approximately 1 gazillion ETFs traded on the NYSE Arca that charge next to nothing in management fees, and you can get in or out whenever you feel like it. Want exposure to Canadian securities? Buy a Canada ETF in New York. Commodities, emerging markets, real estate, currencies, government bonds, corp bonds, small cap, large cap, tech, pharma, financial services, carbon, volatility, t bills, you name it, there is an ETF in New York for pretty much everything now. Transaction cost is around $2; $1 to get into your position, $1 to get out of it. (this is assuming you are with a proper broker such as IB, not some garbage Canadian bank such as the big 5 that charges 10/20/30 dollars or more per trade)

no restrictions whatsoever, and you can take short positions in any of them as well. Canadian mutual fund companies are useless and for the most part deserve to go out of business. Lucky for them, most Canadians are totally ignorant of what management fees people pay in all other developed nations. And also ignorant of the fact that Canadians are being robbed blind by their Canadian financial advisers and fund companies.

So this tax on Canadian mutual funds is basically irrelevant since Canadian mutual funds are miles away from being anywhere near competitive in the market already. Trade in the US and you don't have to worry about this crap.

/rant

 

[LIII1940]

Investors won't feel the additional tax on the fund fees because fund companies will take it from the fund instead of billing the investors. The tax will be reflected in slightly lower fund returns. Also, the tax is on the fund management fees, not on the income, dividends or capital gains generated by the funds. This will make funds slightly less attractive investments, but it's no reason to jump into holding a portfolio of stocks and bonds directly if you don't have enough capital.

http://www.getsmarteraboutmoney.ca/tools-and-calculators/mutual-fund-fee-calculator/default.aspx

Fee's have a negative impact on returns, you will be mad when you see the math.

 

[Robillard]

LIII1940,

I'm not so ignorant as to not know that the the introduction of the HST in Ontario and BC will reduce fund returns. What I said is that investors won't "feel" the effects of the tax on fees in the same that they they don't "feel" the effects of management fees already, even though the effects are there in lower fund performance. It's harder to get outraged about what you're paying when no one presents you a bill, which is probably one reason why Canadian unitholders can be so complacent. That being said, I don't see the increase in fees resulting from the HST as a reason to abandon my portfolio of low-fee index funds in favour of holding the underlying securities. Suppose the management fee on a fund is 1% per year before GST and HST. Then the after tax management fee is 1.12% (if the fund operates in BC where HST will be 7%). Of course, the effects are worse if the mandated fees on the fund are higher. That is yet one more reason to avoid high-fee funds like the plague.

You're also missing the point of what I said in the last sentence. Investors that don't have a lot of capital find it hard to achieve an optimal level of diversification if they are directly holding a portfolio of stocks and bonds. Also, transaction costs can kill investment returns almost as badly as management fees if one is making many small transactions.

 

[OhGreatGuru]

In spite of all the articles claiming HST will add 8% to MERs, I don't think anyone really knows what the exact amount will be, other than the corporate accountants, and they are keping their cards close to their vests. The HST is not charged on everything that makes up the MER; (but I challenge you to try and find out how much GST they are paying now from their published accounts); and the companies will be paying lower corporate taxes, reducing their overhead costs. It will take some forensic accountants to figure out just what the net change is after the full HST comes into effect. (And I don't remember anyone writing stories that "MERs will come down 2%" when the GST was cut from 7% to 5%.)