Segregated
funds offer advantages over mutual funds and no load mutual funds in terms
of maturity and mortality guarantees and creditor protection.
But, another feature that is less publicized is a tax advantage: if a segregated
fund loses capital in a given year, the unitholders can claim the capital
loss on their taxes and offset any capital gains made on other investments.
If you invest in a mutual fund you cannot do this.
Segregated
funds under the taxation rules, are permitted to allocate out gains and losses;
mutual fund companies can only distribute gains or losses. Distributing and
allocating are two different things.
With distribution,
you must physically distribute the dollars out and you can’t physically
distribute a loss.
If a person invests $1000 in a segfund and it’s worth $900 by the end
of the year, he or she can receive a T3 form showing negative $100. This
can be used to offset a capital gain on another investment.
No
load mutual funds or plain mutual funds could not declare the loss unless
it was already cashed it in.
