Traditional investment structures play an important role in real estate, but they often have limitations that impact both developers and investors, restricting growth and efficiency. They can diminish the potential investment fund pool for developers, and minimize choices and tax efficiency investing for investors.
However, Axiom’s Mutual Fund Trust (MFT) structure offers a compelling solution, revolutionizing the way developers access capital and providing a win-win scenario for both parties involved.
Mutual Fund Trusts (MFTs)
Mutual Fund Trusts (MFTs) are very popular because of their tax-efficient structures, particularly in real estate investments. These trusts, recognized by the Canada Revenue Agency (CRA) as “public” entities for tax purposes, offer a range of benefits for investors seeking to preserve the characteristics of their income streams.
One key aspect of MFTs is their finite lifespan, set at 21 years. Within this lifespan, MFTs can be used multiple times, providing opportunities for investors to participate in various projects.
However, to maintain their “public” status as recognized by the CRA, MFTs must adhere to certain criteria. A key requirement is that they must have a minimum of 150 investors by March 31 of the year following their creation. Failure to meet this threshold leads to the investments no longer qualifying for registered status and becoming subject to taxation by the CRA.
What Is Axiom’s MFT?
Axiom presents a fresh approach to raising investment capital and offering tax advantages for investors and developers with their MFT. Axiom’s system leverages the ability of an MFT to be reused indefinitely, within the maximum lifespan of 21 years, so developers do not need to risk being unable to gain 150 investors in time. Projects can be kept separately, but the minimum requirement of investors is satisfied, to avoid the fund from losing its public status and being subject to greater taxation.
This creates a turn-key MFT solution; by ensuring the 150 investors and MFT tax status, investors can use their RRSPs when investing, and developers can reach this broader audience of investors for a bigger pool of funds.
This system also simplifies and streamlines processes, by allowing real estate developers to pool funds for different projects under one structure while keeping each project separate. This flexibility means they can easily secure short-term bridge capital for new ventures or provide various investment options, such as debt offerings or mixed returns.
The Axiom MFT also has a flow-through nature, to allow various types of income, such as capital gains and interest, to flow through to investors without alteration.
Background: Traditional Investment Structures and Their Challenges
Traditional ways of obtaining capital for development and investment venues present challenges for both parties involved.
For Real Estate Developers
Real estate developers seeking capital typically rely on various traditional investment structures, each with its own set of advantages and challenges. Developers may fund projects using their own capital, providing them with full control over the project but also exposing them to significant financial risk and limiting their capacity to undertake larger developments.
On the other hand, collaborating with others through partnerships or joint ventures may allow developers to pool resources, but these structures can be complex, potentially leading to conflicts and inefficiencies.
Securing financing through traditional debt instruments such as bank loans or mortgages offers developers immediate capital for their projects, but comes with repayment obligations and interest costs, potentially impacting project profitability and cash flow.
To tap into a large pool of funds, developers need to leverage a registered fund. In 2021, total RRSP contributions reached $56.1 billion. In the 2020 contribution year, $85 billion was invested in TFSAs. Investors want to use their registered funds because they want to take advantage of the tax-deferred (RRSP) or tax-free (TFSA) benefits to maximize the impact of their investments. With limited resources, they want to use up their contribution room for these registered accounts first, as part of an effective tax strategy. However, many developers have difficulties setting up an MFT, running into difficulties getting the required 150 investors, or other issues in creating a public fund.
Raising capital can be complex and inefficient, requiring developers to navigate multiple layers of documentation, due diligence, and investor negotiations. This complexity can lead to delays in securing funding and increase transaction costs, or limiting investor pools, ultimately impacting the overall feasibility and profitability of real estate projects.
For Investors
Investors seeking real estate options to diversify their portfolio also often experience challenges. Buying properties outright can be costly, time consuming, and require a level of knowledge and expertise, making this not a feasible option for many.
Also, many investors seek to leverage RRSPs and TFSAs, to maximize tax benefits, which is not always possible with real estate-related investments.
This means investors may have to sacrifice choices, either not investing in a potentially lucrative project because of a strategic decision to prioritize investments and funds that are RRSP- or TFSA-eligible, or sacrifice the benefits of tax sheltering from these types of accounts in order to take advantage of opportunities that are not eligible.
Key Features and Benefits of Axiom’s MFT
Axiom’s MFT mitigates risks and complexities associated with traditional investment structures, offering a streamlined and efficient solution that fosters growth and prosperity for both investors and developers. By providing comprehensive support and expertise, Axiom empowers both investors and developers and offers each significant benefits.
Axiom’s MFT is highly tax-efficient, providing secure and dependable tax savings for both investors and developers because of the flow-through nature of the MFT. This means that the trust itself does not incur taxes on its earnings. Instead, the income generated from assets within the MFT, such as rental income or capital gains from property sales, is passed directly to the investors. Investors are taxed on this income at their individual tax rates, bypassing the double taxation typically associated with traditional corporate structures. This tax-efficient arrangement enhances after-tax returns for investors and is a key advantage of investing in MFTs, particularly those focused on real estate.
For Developers
Streamlined
One of the key features of Axiom’s MFT is that it provides a turn-key solution, which allows developers to raise capital for multiple projects using a single, isolated MFT structure. Unlike traditional structures that often require separate arrangements for each project, Axiom’s MFT streamlines the capital-raising process, saving time and resources while enhancing efficiency.
Axiom’s MFT eliminates complexities and inefficiencies associated with traditional structures. With a ready-made MFT structure, developers can expedite the capital-raising process while broadening the pool of potential investors.
Ready-Compliant
Axiom’s MFT also comes already compliant with regulatory requirements. By offering a pre-established MFT with the necessary regulatory approvals, developers can access capital more efficiently without the need for extensive legal documentation or regulatory filings.
With a ready-made MFT structure, developers can expedite the fundraising process and focus on their core competencies, while entrusting the intricacies of capital raising and investment management to experienced professionals.
Enhanced Access to Capital
Axiom’s MFT structure offers developers access to a broader pool of capital sources by allowing them to tap into the large pool of investors wishing to use their RRSP and TFSA contribution amounts for tax sheltering. This expands the potential investor base and provides developers with additional avenues for raising capital.
“I’ve found that as much as 75% of private capital has come from RRSPs. It makes sense: any investor has a limited amount of money to spend, and investors will want to grow their money tax-free or tax-sheltered, so they are going to turn to investments that are eligible for RRSPs or TFSAs first. But for companies looking to attract this capital, it means they have to compete and offer this,” says Dwight Martin, Axiom Advisor.
Flexibility to Tailor
Finally, Axiom’s MFT offers flexibility in investment options, allowing developers to tailor investment terms to suit the preferences of both investors and developers. Whether it’s a debt offering, ownership shares, or hybrid returns, Axiom’s MFT can accommodate diverse investment strategies.
For Investors
Tax Efficient
Axiom’s MFT is highly tax-efficient, providing secure and dependable tax savings for both investors and developers because of the flow-through nature, and because it enables them to further leverage their RRSPs and TFSAs. They can capitalize on tax-sheltered growth opportunities minimizing tax liabilities for unhampered growth.
Maximized Choice for Higher Potential Returns
Investors have the benefit of greater choices as more development projects are eligible for registered investments. They can select from a greater variety, to better diversify their portfolios and choose ones that may offer higher potential returns, and still benefit from a tax-advantaged account.
A “Rare Win-Win” For Both Parties
“It seems so often that with the different interests of investors and developers, the industry can be marked by trade-offs and compromises. Axiom is proud to change that, with a rare win-win. Developers get the capital they need and enjoy streamlined processes, while investors enjoy diverse, tax-efficient opportunities,” notes Dwight Martin.
