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26 lacible | Octobre 2019 FEATURE ARTICLE (PRPP), including a voluntary retirement savings plan (VRSP), or a deferred profit- sharing plan (DPSP), unless they received these funds due to the death of their spouse. • They were on leave with pay and not planning to return to work (for example, if they are using up accumulated sick leave before retiring). A person is not considered to be retired or in pre- retirement if their total employment and business income for the year exceeds $3,500 and, by the end of the year, they had not yet turned 65 or requested the full or partial redemption of their shares. Since 2017, it has not been possible to claim the TCLSF for a federally registered labour-sponsored fund. Return Recent years have been quite good for labour- sponsored funds. For example, on May 31, 2019, the compound annual return for FSFTQ shareholders (not including tax credits and management fees) was 7.8% for one year, 8.1% for three years, 7.7% for five years and 7.3% for ten years. But comparing a labour-sponsored fund to Canadian equities would not present an accurate portrait. According to the FSFTQ's latest financial report, about 40% of the fund's assets are invested in bonds and securities other than equities. This means that the FSFTQ's return shouldn't be compared to Canadian equities alone but to a mix of equities and bonds. For example, if we consider the historic return of the S&P/TSX and FTSE Canada Universe Bond indexes, the FSFTQ return is always lower, regardless of the reference period and taking into consideration the implicit management fees. Of course, the past is never a guarantee of the future. Holding only labour-sponsored investments is risky, given the concentration of assets, but they can be part of an overall portfolio solution. Traditional fund or labour-sponsored fund? Since labour-sponsored funds offer a 30% TCLSF, is it better to invest in one rather than in a traditional fund, even if the return is lower? To analyze this question, let's assume a 5% return on a traditional fund, a 3% return on a labour-sponsored fund and a tax rate of 40%. Scenario A illustrates a comparison of RRSP contributions to a traditional fund and a labour- sponsored fund with the same net cost. For a $1,667 contribution to a traditional RRSP, the net cost is $1,000, given the RRSP tax refund. With a labour-sponsored RRSP, a contribution of $3,333 has a net cost of $1,000, given the RRSP tax refund and the TCLSF. Clearly, there is a benefit to the labour-sponsored fund, but it declines over time, since the return is lower. The benefit of investing in a labour-sponsored fund will be reduced to zero after 36 years. Scenario B also illustrates RRSP contributions, but with contribution room limited to $1,000. Since labour-sponsored funds have an annual ceiling, the tax return will be invested in a non-registered account, in a traditional fund. In this scenario, the labour-sponsored fund offers a benefit for 21 years. Finally, in Scenario C, our investor has no RRSP contribution room (due to compensation in dividends, for example) and can only invest $1,000 in a non-registered fund. In this case, only the labour-sponsored fund provides a tax refund, which can then be invested in a traditional fund. The benefit lasts 30 years.

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