CIFC Exam Dumps : Canadian Investment Funds Course Exam

A strategic asset allocation strategy is one that involves setting target allocations for various asset classes based on the investor’s risk tolerance, time horizon, and investment objectives, and rebalancing the portfolio periodically to maintain the original allocations. This strategy is compatible with a buy-and-hold approach and aims to achieve long-term goals by diversifying across different asset classes and markets. In this case, you are implementing a strategic asset allocation strategy for your client Sierra by assigning 30% of her portfolio to fixed income and 70% to equities, and planning to rebalance her portfolio when the actual allocations deviate significantly from the target allocations.

References: Canadian Investment Funds Course, Unit 7, Section 7.1

This statement is true because a mutual fund trust can distribute its net income and net realized capital gains to its unitholders, and avoid paying tax at the fund level. The unitholders then report their share of the fund’s income and capital gains on their tax returns, and pay tax according to their marginal tax rates. In this case, Redwood has generated $14.25 per unit of capital gains from the sale of Canadian and foreign corporations, and $2.00 per unit of capital losses from the sale of foreign corporations. Therefore, its net capital gains are $12.25 per unit ($14.25 - $2.00), which it can distribute to its unitholders. The unitholders will only include 50% of the net capital gains in their taxable income, as per the inclusion rate for capital gains in Canada1. The other 50% is tax-free.

The other statements are false because:

• A. Redwood cannot flow the foreign dividends to unitholders, who can then take advantage of the dividend gross-up and tax credit mechanism. This mechanism only applies to dividends received from Canadian corporations that are eligible for the enhanced dividend tax credit or the ordinary dividend tax credit2. Foreign dividends are treated as foreign income, and are subject to withholding tax by the source country and income tax by Canada3.
• C. Redwood cannot distribute the $2.00 per unit of capital losses to unitholders, who can then use them to offset their capital gains. A mutual fund trust can only distribute its net income and net realized capital gains, not its capital losses4. However, a mutual fund trust can carry forward its capital losses indefinitely and use them to reduce its taxable capital gains in future years5.
• D. Redwood does not pay the tax on foreign income, and it does distribute dividend or capital gains income from foreign sources to unitholders. A mutual fund trust pays tax on its foreign income only if it does not distribute it to its unitholders in the same year it is earned. However, most mutual fund trusts distribute all or most of their foreign income to their unitholders, as they want to avoid paying tax at the fund level and maintain their status as a mutual fund trust.

References:

• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-10
• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-4
• Foreign Income - Canada.ca
• Mutual Fund Trusts - Canada.ca
• Capital Losses and Deductions - Canada.ca
• Taxation of Foreign Income - IFSE Institute
• Mutual Fund Trusts - IFSE Institute

Taline’s risk profile should be “low” because her risk capacity is low and she cannot afford large investment losses. Risk capacity is the degree of risk that an investor must take in order to achieve their financial goals, while risk tolerance is the degree of risk that an investor is willing to take. Risk capacity is more important than risk tolerance in determining an investor’s risk profile1. Taline has a low risk capacity because she lives on a low, fixed income and cannot afford to lose money. Her risk tolerance may be high, but that does not mean she should take more risk than she can handle. Faruq should not override Taline’s risk capacity or assess her risk profile based on the higher of her risk tolerance and risk capacity, as that would be unsuitable and unethical. References: Unit 3: Suitability