BMO Nesbitt Burns announced March 20 that it is assessing the impact of certain amendments to the Income Tax Act proposed in the Federal Budget. The distribution of some funds that could be affected by the potential tax changes has been suspended until this assessment is complete.
If the amendments become law, certain derivative agreements that the funds have entered into will likely be treated as "derivative forward" agreements for tax purposes, explains the company. This would "increase the income of the Funds and may result in non-refundable tax payable by the TACTIC™ Funds or an increase in the amount of taxable distributions to be made to unitholders of the Q-Model® Funds," says BMO Nesbitt Burns.
Based on its preliminary assessment, the company has determined that the following funds would be affected by the changes and has suspended them for distribution:
BMO Advantaged S&P/TSX Capped Composite TACTIC™ Fund
BMO Advantaged Equal Weight Banks TACTIC™ Fund
BMO Advantaged Equal Weight Oil & Gas TACTIC™ Fund
BMO Advantaged Laddered Preferred Share TACTIC™ Fund
BMO Advantaged Canadian Q-Model® Fund
BMO Advantaged U.S. Q-Model® Fund
The company underlines that the proposed amendments should not apply to existing derivative agreements of a fund until after Dec. 31, 2019, provided that the fund satisfies the conditions for transitional relief. For this reason, the company says it does not expect any change to the tax treatment of the derivative agreements of the funds for 2019.