Which statement regarding switches within a non-registered account is true?

Which statement regarding switches within a non-registered account is true?

• A. They always result in a deemed disposition
• B. Switches are tax-free for all mutual funds
• C. Switches do not require any reporting
• D. They do not result in a deemed disposition if between the same fund family

Answer: (D)

In the context of non-registered accounts, making switches between mutual funds can have tax implications based on the structure of the funds involved. When it comes to switches within the same fund family, these transactions typically do not trigger a deemed disposition. A deemed disposition occurs when an investor is considered to have sold an asset for tax purposes, which can result in capital gains or losses. When switching between mutual funds within the same fund family, the Canada Revenue Agency (CRA) allows for this to be treated differently. The switch is generally considered a continuation of ownership rather than a sale of the initial mutual fund units. Thus, the investor does not incur tax consequences immediately as long as they remain within the same fund family. This is advantageous for investors looking to change their investment positions without triggering potential tax liabilities. This understanding highlights why the option regarding switches not resulting in a deemed disposition when they occur within the same fund family is correct. Other statements regarding switches typically would involve either tax liabilities or required reporting that does not apply in this specific scenario.

In the context of non-registered accounts, making switches between mutual funds can have tax implications based on the structure of the funds involved. When it comes to switches within the same fund family, these transactions typically do not trigger a deemed disposition. A deemed disposition occurs when an investor is considered to have sold an asset for tax purposes, which can result in capital gains or losses.

When switching between mutual funds within the same fund family, the Canada Revenue Agency (CRA) allows for this to be treated differently. The switch is generally considered a continuation of ownership rather than a sale of the initial mutual fund units. Thus, the investor does not incur tax consequences immediately as long as they remain within the same fund family. This is advantageous for investors looking to change their investment positions without triggering potential tax liabilities.

This understanding highlights why the option regarding switches not resulting in a deemed disposition when they occur within the same fund family is correct. Other statements regarding switches typically would involve either tax liabilities or required reporting that does not apply in this specific scenario.