What You Need to Know About BMO Funds Tax Information for 2021
As the end of the year is approaching, investors are gearing up to file their taxes and plan their finances for the upcoming year. One crucial aspect of financial planning is understanding the tax implications of mutual funds, such as BMO Funds. In this blog post, we will discuss everything you need to know about BMO Funds Tax Information for 2021.
What are Mutual Funds?
Before delving deeper into the BMO Funds’ tax implication, let’s quickly rehash what mutual funds are. A mutual fund is a professionally managed investment scheme that pools money from multiple investors to purchase securities like stocks, bonds, and other assets. When you invest in a mutual fund, you become a ‘unit holder’ or ‘shareholder’ and own a portion of the fund’s total asset value.
Ownership and Tax Implications of Mutual Funds
There are two common types of mutual fund ownership in Canada- non-registered accounts and registered accounts. Non-registered accounts are taxable investment accounts that do not have contribution limits but don’t offer tax benefits. In contrast, registered accounts are tax-advantaged accounts, specifically designed for retirement savings. These accounts offer tax-sheltered growth and tax-free withdrawals upon retirement.
BMO Funds Taxation on Non-Registered Account
For non-registered accounts, you are required to pay taxes on the income generated from your BMO Funds investments. The income generated from your mutual fund investment can be in the form of capital gains, dividend income, or interest income. Here’s how each of these income types is taxed:
– Capital gains: When you sell your mutual fund units for a profit, it’s considered a capital gain. 50% of your capital gains are subject to taxation at your marginal tax rate. In other words, you only pay taxes on half of your capital gains.
– Dividend Income: Dividends are a portion of the company’s profits that are paid out to shareholders. In Canada, eligible dividends (received from Canadian corporations) have a lower tax rate than non-eligible dividends (received from foreign corporations or public companies)
– Interest Income: The interest earned from bonds or money market investments is fully taxable at your marginal tax rate.
BMO Funds Taxation on Registered Account
In contrast, the tax implications of BMO Funds investment for registered accounts are less complex. In Registered accounts, such as RRSPs, TFSAs, or RESPs, you generally do not have to pay taxes on any income generated inside the account. However, when you withdraw money from the registered account, you will be subject to taxes at your marginal tax rate.
Conclusion
In summary, understanding the tax implications of BMO Funds investment is crucial for making informed investment decisions. Tax planning should be a part of any investor’s financial planning strategy, and seeking professional advice is highly recommended to optimize your investments’ tax efficiency. By keeping the information discussed in this article in mind while planning your investments and filing your taxes, you can make the most of your BMO Funds investment and save on taxes.
