Scenario: An investor, Liam, holds a corporate class mutual fund and decides to move his investment from a Canadian Equity Fund class to a Global Fixed Income Fund class within the same corporate structure. The Canadian Equity Fund has appreciated significantly. Which of the following is the most likely tax consequence for Liam at the time of the switch?

Question: Scenario: An investor, Liam, holds a corporate class mutual fund and decides to move his investment from a Canadian Equity Fund class to a Global Fixed Income Fund class within the same corporate structure. The Canadian Equity Fund has appreciated significantly. Which of the following is the most likely tax consequence for Liam at the time of the switch?

Answer options:

• Liam must pay capital gains tax on the appreciation of the Canadian Equity Fund. ✅ Liam can defer capital gains tax until he eventually redeems units from the corporate structure.
• Liam will incur a taxable capital loss due to the switch.
• Liam will receive a tax-free distribution from the original fund class.

Correct answer: Liam can defer capital gains tax until he eventually redeems units from the corporate structure.

Explanation: A key advantage of corporate class mutual funds is the ability to switch between different classes (funds) within the same corporate entity without triggering a taxable event. This means capital gains or losses are deferred until the investor ultimately redeems their investment from the larger corporate structure.