Managed Money Reporter Newsletter — Issue 231, October 2006

Editors: Carl Spiess & Allan McGlade

Featured Articles

Investing and Altruism – How to donate tax-effectively

By Carl Spiess

Canada is seeing a rise in charitable giving. The Tsunami 20 months ago, and recent news of Bill Gates' and Warren Buffet's major donations are spurring ordinary Canadians to continue the trend of the last few years which has seen ever increasing donation amounts. Canadians, it seems, are a generous bunch and are pleased to be able to share their good fortune with others. Now, more than one in four Canadians make some kind of charitable donation, and for those who do donate, new tax rules can really help to reduce the cost of donating.

With the recent May 2, 2006 federal announcement that capital gains tax has been eliminated on the donation of securities (e.g. stocks and funds) to charities, many clients are rethinking their approach to charitable giving. If you are planning on making a significant donation to a charity this year, please contact us for information about how to use securities from your non-registered investment account to avoid paying a (future) capital gain.

For example, if you were planning on giving $2,000 to your favourite charity at year end, and were going to write a cheque or donate shares, you would receive a significant $920 tax break on your income tax for the donation. (Assuming 46% tax bracket and first $200 in donations are already made). But if you had to sell securities with a zero or very low cost base (say from an insurance demutualization), to raise the $2,000 you wind up paying around $460 in tax, and thus only net $460 in tax savings. If you instead donate those shares directly, there would be no capital gains, and we could re-invest the same $2,000 cash that you were going to donate, back in your investment account, investing in similar securities with a new higher cost base, thus reducing your potential future gains taxes due.

If you are looking at doing more than a single donation, there are also new options for setting up a foundation through a Charitable Giving Fund. Mackenzie has introduced an innovative program. The web site provides a good overview of the concept, the process and all the features that make the Charitable Giving Fund the 1st of its kind in Canada.

In the end, the less it costs you to donate the more you can afford to help your favourite charities. When planning for your charitable giving, please give us a call. We would be pleased to help you structure your donations to make them as tax-effective as possible. It makes us feel good, too!

More on charitable giving and taxes

CI Canadian Investment Fund Manager Change

The longest running Canadian investment fund, the 73 year-old CI Canadian Investment Fund has announced a major manager change. Daniel Bubis will be taking over the management of CI Canadian Investment Fund after a 60 day transition from former manager Kim Shannon who did an excellent job of running the fund for many years. Kim is moving to run Canadian investments at Brandes Investments Partners, who are known for their international investing but whose Canadian offerings have been lagging. We will be watching the new manager carefully, and advising if we will recommend clients follow Kim or stay in the CI Canadian Investment Fund which has had many managers over the years and has averaged 9% a year since November 16, 1932.

More on CI Canadian Investment Fund

  • CI Funds' announcement
  • Canada Newswire

Templeton Growth Fund Manager Change Update

At Templeton's annual meeting this June, it was announced that Lisa Myers is taking over as the manager of Templeton Growth Fund. George Morgan, who managed the 52 year-old fund since 2000, is leaving the Nassau-based fund company to return to Canada for personal reasons.

As with the previous manager changes on this fund, we will be watching the transition, and letting clients know if we have any concerns. At present, there have only been encouraging signs, with performance continuing to be first quartile over the last 1, 3 and 6 months to September 30, 2006.

Helped by its relatively low Management fee, the fund continues to easily outperform both its peers and the index, and we continue to have it as a core recommended fund.

More on Templeton Growth Fund

RBC Capping O'Shaughnessy Canadian Equity Fund In January

RBC Asset Management has announced that it will close the RBC O'Shaughnessy Canadian Equity Fund to new purchases in January, 2007. The excellent performing fund has rapidly grown to 2 Billion in assets, and (for certain clients) we have been a fan of the various funds Jim O'Shaughnessy has run.

As with other fund closures we have seen over the years, this is usually a good thing for current unitholders, as it allows the manager to continue a successful strategy with a manageable portfolio size.

The first time I attended one of Jim O'Shaughnessy's investment presentations, around 5 years ago, I was the only non-RBC advisor there. So in case you are wondering, yes, we like to know about and have available to you the best funds and, if we like a fund, even from another bank, we are happy to let you know about it.

More on RBC O'Shaughnessy Canadian Equity Fund

  • Morningstar's analysis
  • RBC press release

Canada Savings Bonds and Alternatives

November 1st is the annual renewal day for Canada Savings Bonds. Rates, unfortunately, are not worth getting excited about. The regular bond is posted at 3% and rates work out 3.24% compounded over 3 years with the premium bond.

In addition to CSBs, your account at ScotiaMcLeod offers Guaranteed Investment Certificates from 8 issuers, and since as brokers we can shop for the best rate, you will always do better than dealing just with a bank or trust company. Rates for 1-5 year GICs are all over 4%, please contact us for exact rates, as they change daily.

We also have a variety of 3rd party daily interest deposit funds (Altamira, Manulife, Dynamic, Talvest) and cashable GICs with current annual yields running at 3.85%. (Certain minimum investments and/or nominal transaction fees may apply). Finally, our own Scotia funds have competitive yields (see link below).

More on Canada Savings Bonds and alternatives

Recommended Reading: Income Trusts and Ottawa

Addendum: The federal government's announcement on Wednesday, November 1, 2006 obviously did not take the recommendations of the article mentioned, below. We expect the markets to continue to adjust to this new taxation which fortunately, does not take effect until 2011. There was some good news about spousal income splitting though, that takes effect next year. ScotiaMcLeod and Scotiabank's comments are provided below.

With the pending conversion of BCE into an income trust, there are many questions about the taxation of income trusts and the future for that sector. Our recommended reading this month is an article from KBSH investment management about what the current furor about income trusts is all about.

Change of Morningstar Fund Categories

Effective this month, Morningstar has changed the categories that you may have become accustomed to using when searching and ranking funds. For example, there is no longer an Income Trust category, as so many regular equity funds now include trusts, and they were never really a separate asset class. Some category names we will need to get used to: Canadian Anchored Equity, Canadian Equity Tilt, Portfolio, Canadian Core Fixed Income, and 15+ Year Target Date Portfolio. We will be reviewing our public fund performance categories and data tables on in the coming months, and in the meantime, your secure online information at ScotiaOnline uses the new Morningstar categories.

More on Morningstar fund categories

Mutual Fund Reporter Recommended Web site of the Month

For more information on the benefits of securities donations, we recommend the Mackenzie Financial web site. There are also some useful financial planning tools that help calculate the after-tax effect of donating securities and/or flow through shares. They also have information on their new Charitable Foundation program.


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F.  416.863.7479

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