With the cost of living rising, there’s a way to use your investments to help generate additional cash flow.

The recent surge in the cost of living in Canada is putting a strain on the ability of many individuals to spend money on non-essentials and travel, or to save for the future. With the rising prices of essentials like groceries, housing and transportation, Canadians find it increasingly challenging to set aside money for things they want to see or do today or tomorrow. As such, short- and long-term financial goals such as retirement, renovations, travel or homeownership may become more challenging to achieve without careful budgeting and planning. But wait, could your investments help now without impacting your overall plan for the future?

Introducing the Corporate Class mutual fund. The corporate class concept was designed to deliver tax-efficient investments for non-registered assets. Adopted by many fund companies over the years, these investments have evolved due to changes in the tax code, but tax-efficient distributions (Series T) help achieve cash flow. Here's how.

A Series T, when applied to a Corporate Class Mutual Fund, is a monthly distribution paid out in a tax-preferred manner. Selecting a T series providing the desired income level means that whatever percentage chosen will be distributed in equal monthly installments from the net asset value of the total investment, calculated annually.

In other words, a T6 will pay out monthly installments equal to 6% of the starting net asset value of the total amount invested in the corporate class structure. The tax treatment, however, is where the real magic happens. The distributions from this income stream are taxed as the return of capital or tax free.

What's the catch? As much as the return of capital is not taxable, it does reduce your adjusted cost base (ACB) of the funds you've invested in, which means that when the investments are ultimately sold, you will realize a capital gain. Currently, capital gains taxation is still the most preferred level of taxation in Canada, but the amount here will be higher than if you had not participated in the Series T.

Please remember that the percentage associated with the Series T does not indicate the rate of return of the underlying investment. That being said, if your selected Series T rate exceeds the rate of return in the underlying investment, the money will grow despite the monthly distribution. If it is less, the opposite is true. Also, the fund companies will reset the amount of the distribution annually, so as the size of the asset changes, so will the monthly distribution total.

Overall, Series T within a corporate class structure may provide additional cash flow while costs remain high for essentials. At Allan Bush Investment Group, we're always here to help determine the most appropriate strategy based on your individual circumstances and financial goals. If you would like a second opinion, feel free to reach out to a member of our team.