Healthy tax breaks for Medical Discoveries fund: tax breaks for Canadian Medical Discoveries Fund include a 5% research investment fund tax credit

Money Digest, May, 2002 by Chris Cahill

The Canadian Medical Discoveries Fund is a venture capital fund that offers investors ground floor access to tomorrow s biotechnological heroes. Dr. Calvin R. Stiller manages the fund and and is also Chairman and CEO. Biotechnology is experiencing a revolution. By all accounts it is one of the world's fastest growing industries and will continue to grow by leaps and bounds. The tremendous potential comes down to DNA.

The information technology enthusiasts like to say that the digital revolution is as profound a change as the industrial revolution, but the biotechnological revolution may have an even greater impact on both the economy and our daily lives.

Funding for research in biotechnology and other life sciences does not normally cover the many costs associated with protecting and determining the commercial viability of a drug discovery.

As a key venture investor in Canada's biotechnology industry, Dr. Stiller began the Canadian Medical Discoveries Fund taking advantage of the rules and the deductions around labour-sponsored funds. Investors in Canadian Medical Discovery Fund can gain ground floor access to significant market opportunities that will unfold in the areas of cancer research, genetic research and diagnostic success for intervention monitoring for a variety of conditions and diseases.

Canadian biotechnological companies invest almost $600 million in research and development and their annual sales total over $1 billion. Canada is in fact a world leader in the field of biotechnology. Given the economic benefits of the venture-backed companies, the federal government and some of its provincial counterparts offer income tax credits to individuals who invest in labour-sponsored venture funds such as Canadian Medical Discoveries Fund.

The tax credits for the Canadian Medical Discoveries Fund are richer than for other labour-sponsored funds because the fund receives an additional 5% research-oriented investment fund tax credit. If you are in the top tax bracket, this means a net cost to the investor of only $750 for a $5,000 deposit to the Canadian Medical Discoveries Fund.

When looking at a labour sponsored fund, remember that the credits can only reduce your tax to zero and that the tax credits are not refundable. Recognize that labour-sponsored funds are above-average risk and that the mandate is to invest in small and medium companies that are not usually publicly traded.

And don't forget that you can't get your money out. All the labour-sponsored funds have a minimum holding period of eight years. If you redeem your investment early, you will have to repay all your tax credits. There are no exceptions to the rule, so these funds are really not suitable for Registered Retirement Income Funds.

While the tools and pace of medical discoveries are changing, the fundamentals of building shareholder value through investing in biotechnology have not. Discoveries need time and money in order to develop into products and to be nurtured through the intricacies of the regulatory process. No matter how promising the medical discovery, the process of bringing it to market takes the vision, skill and precision of a well-experienced, well-informed team of experts.

Chris Cahill, B.A., C.F.P., C.L.U., Ch.F.C., is President of Financial Strategies Group, a broadcaster, a weekly columnist and co-author of Harvesting Your Wealth. Phone: (519) 438-3308; fax: (519) 438-7424.

RELATED ARTICLE: Changing your mind after buying a fund

Can you change your mind after buying a mutual fund? Yes, in most provinces and territories.

Right of withdrawal. You can cancel your agreement to purchase a mutual fund by giving written notice to your dealer within two business days after receiving the fund's prospectus. This is known as the right of withdrawal. If you exercise it, you are entitled to receive the full price your paid plus any associated sales fee or commissions.

Right of rescission. Again, in most provinces and territories, you also have the right to cancel your mutual fund purchase by giving written notice to your dealer within 48 hours of receiving your written confirmation of purchase. If you exercise this right, you will receive the full purchase price you paid or the net asset value for each unit, whichever is lower. Your sales charges will be returned to you.