Jamie, a self-employed graphic designer in Halifax, purchases a segregated fund contract with an initial deposit of $100,000. She allocates $50,000 to a Canadian equity fund and $50,000 to a global bond fund. Over the next five years, the equity fund grows to $75,000, and the bond fund maintains its value at $50,000. She decides to rebalance her portfolio by selling $12,500 from the equity fund and buying $12,500 into the bond fund to restore her 50/50 allocation. How will this transaction affect her tax situation?

Question: Jamie, a self-employed graphic designer in Halifax, purchases a segregated fund contract with an initial deposit of $100,000. She allocates $50,000 to a Canadian equity fund and $50,000 to a global bond fund. Over the next five years, the equity fund grows to $75,000, and the bond fund maintains its value at $50,000. She decides to rebalance her portfolio by selling $12,500 from the equity fund and buying $12,500 into the bond fund to restore her 50/50 allocation. How will this transaction affect her tax situation?

Answer options: ✅ She will realize a capital gain of $4,166.67 on the sale from the equity fund.

• She will realize a capital gain of $12,500 on the sale from the equity fund.
• There will be no immediate tax implications as it is a rebalancing within the segregated fund contract.
• She will be deemed to have disposed of the entire equity fund, triggering capital gains on the $25,000 growth.

Correct answer: She will realize a capital gain of $4,166.67 on the sale from the equity fund.

Explanation: Switches between funds within a segregated fund contract are considered dispositions for tax purposes. Her equity fund grew by $25,000 on a $50,000 investment. Selling $12,500 (one-fifth of the current value) means 1/5th of the gain is realized: ($25,000 / $75,000) * $12,500 = $4,166.67 capital gain.