.
Which of the following is not a benefit of investing in mutual funds?
a)
Funds offer an inexpensive way for small investors to access professional management of their investments.
You chose:
b)
Fund ownership provides a low cost alternative to small investors for acquiring a diversified portfolio.
Capital gains receive a special exemption under the Income Tax Act (Canada). Only 50% of any capital gains are subject to tax, including capital gains distributions. The investor’s capital gain is ($30 - $20 x 100 units) + (1.50 x 100 units) = $1,150. On this, only 50% of the gain is taxable, and he will pay tax at his marginal rate of 45% on the remaining $575, or an amount of $258.75. Of course, if the investor had held the funds in his RRSP or other tax-sheltered arrangement, he would have paid no current income taxes on his capital gains. When he eventually withdraws these funds from the tax-sheltered arrangement, however, he will pay taxes on the full amount of the disposition at his marginal tax rate, without the benefit of the capital gains treatment. Text Reference: Chapter 18: Mutual Funds: Structure and Regulation.