Market volatility, investments and taxes

Why do I have a tax bill for my investment even when the value has dropped?

During times of volatility, it’s natural for investors to worry that their investments will lose value – in fact they may even expect a decline at times. What’s unexpected, however, is getting a tax bill for an investment that has dropped in value. Many mutual fund and segregated fund investors may wonder why this happens.

The reason is fairly straightforward. The fund has either received income (interest or dividends) from its underlying investments during the year, or the portfolio manager sold underlying investments, realizing a capital gain. Even though the price of the fund has dropped, the income from transactions that have occurred throughout the year must be passed along to investors, and that income is taxable.

Read the full article*

* This article opens in a new window directing you to Manulife's Solutions for Financial Planning Magazine.

© 2022 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value.