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Annual Review of Labour Sponsored Investment Funds - January 2007 | |
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This time last year, many had already heard about the Ontario Government’s plan to phase out provincial tax
credits for Labour Sponsored Investment Fund (LSIF) purchases, starting in 2008. The plan to eliminate the provincial
As things stand today, investors are still able to choose from among almost 100 LSIFs and receive a 30-35% tax credit (up to $5,000 maximum). Federal and provincial governments provide these credits because they hope that these funds, which invest in small companies, will stimulate research and development and/or create high quality jobs in their jurisdictions. Individuals can apply tax credits against 2006 income if the investment is made by March 1st, 2007. Over the past few years, we have seen several smaller fund companies in this sector feel the strain of a competitive marketplace, combined with the reality of the provincial plan to eliminate the tax credits, as mentioned above. This has lead to a shrinking competitive environment and, in some cases funds have been forced to freeze redemptions temporarily. We continue to feel that the possibility of further consolidation in this sector should dictate caution in fund selection. Not all LSIFs are the same, and depending in which province you reside, there may be restrictions on eligibility. Of the funds available, we do feel comfortable recommending several of the larger participants in the LSIF industry, as they have consistently offered a diverse range of products for our clients and have shown resilience amidst recent legislative announcements. Over the past few years, Growthworks have offered a unique family of funds that provide investors with added flexibility in the portfolio. With 70% of the fund exposed to venture capital, individuals are able to choose among six portfolios for the remaining 30%. This blended portfolio concept has proven itself over the past three years with solid returns. Two years ago, they also launched the Growthworks Commercialization Fund (35% tax credit), which also pays up to a 25% dividend over the first three years. Vengrowth has recently announced that they are re-opening the Vengrowth I Fund for current unit holders to allow for rollovers. The Vengrowth Traditional Industries Fund fell off slightly from its 2005 performance but still offers an alternative in this sector for those looking for a more conservative option. Vengrowth also continues to offer the Advanced Life Sciences Fund for investors interested in an additional 5% tax credit from the province (35% total). Canadian Medical Discoveries (purchased in January 2006 by Impax Capital Corp) is still available for purchase and is eligible for a 35% tax credit. This fund focuses primarily on the health sciences sector, specifically on businesses engaged in early-stage research and development. The Dynamic Venture Opportunities Fund led this sector with incredible 21% returns. This diversified fund holds several public companies in its portfolio, among them several of the large Canadian banks that have undoubtedly reduced the volatility of the portfolio and enhanced returns. This fund provides a 30% tax credit. For investors who are interested in supporting companies focused on development of alternative fuel sources, Venturelink and Algonquin Power funds offer exposure to this important sector among their family of funds. As part of our ongoing monitoring of your account, we review any existing LSIF holdings and will be in contact if you have any LSIFs eligible for tax-free rollover or redemption. For any questions on LISFs, please contact our LSIF specialist Andrew McGoey. More on labour sponsored funds
Important LSIF FactsMany specialty LSIFs qualify as a Research Oriented Investment Fund to be eligible for an additional 5% Ontario tax credit for a total of 35% in tax credits at the federal and provincial level. After your 5 or 8 year holding period for your fund has expired, you can redeem and repurchase your fund, and get the tax credits all over again. See the rules for more details. We regularly mail to clients who have shares eligible for redemption to let them know about their rollover options. You may want to review your accounts to see if you will have holding period(s) ending in the near future and plan accordingly. Please contact us - we would be glad to review your funds with you. The LSIF purchase does not have to be made with new money. Existing assets in your RRSP or non-registered account can be used to purchase a Labour fund. Not all provinces offer tax savings for LSIF investment. This information is intended for Ontario residents. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate(s) of return is (are) the historical annual compounded total return(s) including changes in (share or unit) value and reinvestment of all (dividends or distributions) and does (do) not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. See more disclaimers ... | ||
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tax credits entirely by the end of 2010 has not changed over the past 12 months. However, changes to the Federal
government and a Provincial election later this year have given some industry experts reason to believe that good
things may lay ahead for this sector. Clearly, time will tell.