The Labour-Sponsored Investment Funds market sees two new entrants this RRSP season - Fiscal Agents Money Management Newsletter

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The Money Management Newsletter: RSP Planning
The Labour-Sponsored Investment Funds market sees two new entrants this RRSP season
Like most, the inferences in the sales hype are the tax savings - as the product managers are in search of opportunities to invest your money in.

By David Newman
Money Management Newsletter, February 2004

The Financial Industry Opportunities Fund offered by Triax Covington is as the name suggests looking specifically at the financial services sector.

This fund looks to participate in the success of the fastest growing new financial services companies, while offering significant tax benefits. It says it will be investing in firms within diverse segments such: -

Investment management, Net Worth Management, Leasing, Structured Finance, Merchant Banking, Financial Advisory, Private Banking, Securities Brokerage.

Triax Covington believes that this specialty fund can take advantage of one of the most prosperous sectors of the economy. Traditionally, institutional investors have dominated new financial industry opportunities.

Now, by investing along side one of Canada's most successful entrepreneurial firms - in a co-investment arrangement with First Asset Management Inc - offers some of the best risk-adjusted opportunities in private-equity investing. The financial industry has investment fundamentals, including

· Consistent cash flow generation
· Favorable demographic
· Strong margins and profitability
· Low capital expenditure requirements
· Trends towards consolidation

To review the more details - follow this link Financial Industry Opportunities Fund

The following chart is the standard displays the tax adjusting benefits.

Taxable Income
(1)

RRSP
Investment

RRSP Tax
Savings (2)

LSIF Tax
Credits (3)

Total Tax
Savings

After Tax Cost
of Investment

$20,000 - $32,435

$5,000

$1,103

$1,500

$2,603

$2,397

$32,436 - $57,108

$5,000

$1,558

$1,500

$3,058

$1,942

$57,109 - $64,368

$5,000

$1,649

$1,500

$3,148

$1,851

$64,369 - $67,288

$5,000

$1,970

$1,500

$3,470

$1,530

$67,289 - $104,648

$5,000

$2,170

$1,500

$3,670

$1,330

over $104,648

$5,000

$2,320

$1,500

$3,820

$1,180

1) Gross income tax deductions.
2) Tax Savings attributable to all RRSP eligible investments.
3) 15% federal and 15% provincial tac credits.

Do we get older each day - yes, and as we do, the quest for longevity and the increasing ability of modern medicine to prolong life are leading to unprecedented growth in the health sciences sector.

Talvest Mutual Funds have launched a sequel to its Canadian Medical Discoveries Fund (CMDF). Carrying the moniker "CMDF II" Its to follow a similar philosophy, but concentrating its focus on investing in eligible business in the later stages of development. [The original fund focus in on the early stages]

CMDF II is looking to capitalize on its partnership with MDS Capital Group and its Scientific Advisory Board. CMDF's solid portfolio of more than 40 health sciences companies provides unique investment opportunities as a number of companies are poised to move their products through to commercialization.

Some of the leading factors affecting growth of medical sciences sector is the Aging world population

People over 65, who spend 10 times more on health care than any other group, will experience a significant increase in the next 30 years. This will lead to a consistent demand for health care products that is relatively immune to economic cycles.

Rising health care expenditures

Health care spending increases with age. In the U.S. alone, national health care spending will likely increase to approximately $2 trillion by 2007 due to the increasing needs of an aging population.

If you had made an investment prior to March 6, 1996 into an eligible reaseach focused fund (Ontario only) consider redeeming the units and reinvest and receive another tax credit - of up to 35% - using the same investment! The following chart illustrates the net out-of-pocket cost of an investment made by a resident of Ontario:

	With RRSP tax savings	Without RRSP tax savings
Inital investment (1)	5,000	5,000
Original tax credit (40%)	2,000	2,000
Original RRSP tax savings (2)	2,500	N/A
Out-of-pocket cost	500	3,000
New tax credit (35%)	1,750	1,750
New out-of-pocket cost	(1,250)	1,250
Invested prior to March 6,1996. The illustration assumes a 50% marginal tx rate. No additional RRSP tax savings will apply if eligible units were originally invested in an RRSP. Some limitations apply, please refer to the fund prossoectus. A redemption fee may apply. New shares must be held for eight years to avoid repaying tax credits. Tax credits are non-refundable. Income tax is payable on all amonts withdrawn from an RRSP. These tax credits reates applicable as at November 15, 2003.

So what's being said is, an overall tax credit of 75%, plus an original RRSP deduction produces a free investment and then some, from the federal and provincial govenments.

This scenario can also be used on other Labour Sponsored Investment Funds. It allows you to significantly reduce the cost of your original investment further. Any tax credit amount would be tied to the particular eligibility of the investment fund.

Some words of caution: Please read the prospectus before investing. The promoters of the funds have downloadable copies at their respective websites, or if you with to talk to a Fiscal Agents investment advisor about this or any other investment fund - click here.

This article relies on material provided by the companies mentioned.

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