T Class – Investing for a Tax-Efficient Income Stream
T Class funds are designed specifically to address the need for a tax-efficient income stream.
T Class funds consist of investment funds, each structured to pay a monthly distribution of approximately 8% per year.
These funds give you income by returning a portion of your original investment, which is called "return of capital" (ROC). This portion of the distribution is not taxable when the distributions are paid out, thus the investors receive a regular tax-efficient cash flow without redeeming shares and without triggering personal capital gains.
The big advantage of this type of income is that ROC is not immediately taxable. If the fund's value is increasing at a rate that exceeds the distribution payout, the ROC is essentially returning a portion of the fund's unrealized appreciation or growth. The net result is that the cash flow is tax deferred until the units are sold or the investor's capital is eventually depleted.
Although return of capital defers taxes, it effectively lowers the adjusted cost base of the investment. When the investment is ultimately redeemed, any realized gain is then subject to tax. The benefit is that the tax on this gain has been largely deferred up to this point, allowing you to control when you wish you incur this tax liability.
If your investments are in a registered account like a Registered Retirement Income Fund, your withdrawals get treated as interest income. In non-registered accounts like T Class funds, the nature of your income stream—whether from capital gains, dividends, interest or return of your original capital—doesn't matter because of the tax deferral feature of these funds.
Investing to get a consistent monthly income requires an even-handed approach. You want to preserve initial capital while making sure that capital produces sufficient returns to give you long-term income.
Since this doesn't involve selling fund units the income is not taxable until you ultimately redeem the investment. This means you can choose when to take the tax hit by deferring the taxes payable.
(Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.)
