Distributions are received by the segregated (seg for short)) fund from the assets held, such as stocks and bonds. Depending on the assets held, distributions could include Canadian dividends, foreign income, other income, and capital gains. A seg fund may also realize capital gains upon a disposition of fund assets (including redemption of seg fund units). It is also possible for a seg fund to incur capital losses on the disposition of fund assets. Seg fund income as well as capital gains and losses are allocated each year to the contract holders.
Tax rules that apply to seg funds are quite complex, especially when a spouse dies who holds a seg fund contract in an RRSP. However, there are tax strategies that your insurance advisor can develop to make the use of seg fund’s ability to establish a policy beneficiary.
You may be a good candidate for seg fund use if:
- You are a conservative investor and yet want higher returns than GICs offer.
- You are a pre-retiree who needs growth, but can’t afford to lose money over the long term.
- You are a senior who requires estate protection and certain capital guarantees.