Franklin Templeton Addresses Federal Budget Implications for Canadian Mutual Fund Investors

TORONTO, March 28, 2016

Change to Corporate "Rollover" Rules for Mutual Fund Corporations

Notably, it was announced that corporate "rollover" rules, which allow an individual investor in one class of shares of a mutual fund corporation to switch to another class in the corporation without triggering a capital gain or loss, will change. As proposed, effective October 1, 2016, exchanges of shares between different classes of a mutual fund corporation will be treated as a disposition at fair market value, triggering a capital gain or loss for the investor at the time of the switch. Accordingly, after October 1, switches between share classes of Franklin Templeton Corporate Class Ltd. (Corporate Class-structured funds) will no longer benefit from tax-deferred treatment.

"A number of the fundamentals of the Trudeau government's first budget were well telegraphed, however, the elimination of tax-deferred exchanges between share classes of mutual fund corporations – including Franklin Templeton's Corporate Class-structured funds – caught the Canadian investment industry by surprise," said Duane Green, managing director, Canada, for Franklin Templeton Investments Corp.

At the current time, there are no immediate tax consequences for exchanges between Corporate Class-structured funds, nor are there any restrictions in place at Franklin Templeton with regard to purchasing or switching into these funds, but investors should be aware of these impending changes and take them into account when making any investment decisions. Investors are encouraged to speak to their investment advisor about these changes and their options.

Franklin Templeton will continue to monitor the situation closely and work with industry groups and other stakeholders to better understand the full impact that this change will have on mutual fund investors, and to seek to mitigate that impact, where possible. Further updates will be provided as more details on the proposal emerge.

Comments on Budget from Franklin Templeton Solutions