Last updated: March 26 2008

Tax Consequences for Investors in The Crocus Fund

Recently there has been a modicum of good news for investors in the Crocus Fund, a Manitoba-based Labour-Sponsored Investment Fund. The fund ceased trading 1995. In an out-of-court settlement reached recently, 34,000 unit holders may receive a portion of $12 Million. The settlement is expected to take place sometime this fall.  What will the tax consequences be?  That will depend on whether the money is held in a registered or non-registered account.

But first, it is important to note that under normal circumstances LSIF investors who redeem their investments before the required 8-year holding period would be required to repay the tax credits earned by the investment. Exceptions can be made in such circumstances as terminal illness, disability or severe hardship so one would expect that an exception will be made for Crocus investors as the redemption was not voluntary.  In fact, the Manitoba government has already confirmed that this will be the case.

Of course, there will be no tax relief for investors whose fund units were held in their RRSPs. Any investor who holds the units in a non-registered account will be able to claim a capital loss in the year that the proceeds of disposition are final. In most cases, one would expect that the ACB of the investment would be the sum of the initial investment and the tax credits claimed, but the Income Tax Act specifically exempts LSIF units from this rule so the ACB will be the amount initially invested.