Advanced Tax Planning Services

Reducing Your Tax Bill

If you consider your tax bill as an expense – which it is – your annual payment likely ranks as the biggest item in your annual household budget. As investment professionals, we know that some people don’t pay enough attention to their taxes. Consequently, they wind up paying more than necessary.

The reality is, there are lots of ways to save money on your taxes. It just takes an understanding of the tax code – and that’s where we can help.

When it comes to your investments, it’s imperative to have a strategy in place for minimizing your tax burden. Poor investment tax planning can cause you to fall short of your retirement goals, even when you do everything else right. The place to start is to learn about the different ways that investment income is taxed.

Your financial advisor is deeply knowledgeable in this area and can assist in creating a tax-efficient investment plan. Keeping your taxes low shouldn’t be your only consideration when choosing investments. But tax minimization is essential to successful investing and should be part of every investment decision you make.

Benefits of Tax Planning

  • Minimize your tax bill each year
  • Maximize tax-sheltered investment income
  • Maximize all tax credits and deductions

Related Information

  • Corporate Class Funds

    Maximize profits and minimize taxes

    For mutual fund investors, it’s not just size that matters – it’s structure. Structure counts when you redeem. If you’re invested in a traditional mutual fund outside your registered account and want to sell units of the fund that have increased in value since you bought them, you could face a capital-gains tax. That’s because a traditional mutual fund is structured as a trust, and its tax efficiencies are advantageous to the fund company, rather than to you, the investor.

    But if you had instead invested in corporate class funds, you might have paid less tax in the end. That’s because a corporate class fund is designed as a holding corporation, set up by a fund company to invest in a group of mutual funds. The result is that corporate class funds tend to pay out distributions that are more tax-efficient to the investor. Plus, as long as your money remains invested in a corporate class fund, the tax payable on any gains is deferred.

    This allows your money to grow faster and more efficiently through the power of compounding. Corporate class funds are generally used by investors who have reached their contribution limits in tax-free savings accounts and registered retirement savings plans. The appeal of this fund class is that it represents yet another option for tax-efficient investing. When choosing a corporate class fund family, look for one with a wide variety of available funds. Ideally, it should include Canadian, U.S., global equity, sector and money market funds, as well as offering differing management styles.

    For the right investor, corporate class funds can be a great way to make your portfolio more tax efficient. And, over the long term, tax-efficient investing can have a positive impact on the value of your portfolio.

    Important Tax Change Notification

    As of January 1, 2017, Corporate Class Funds have lost some of their tax advantages. The 2016 Federal Budget told us that exchanging units of one corporate-class fund for another would no longer be tax-deferred. This change has eliminated the ability of investors to switch between funds in corporate class investments without paying capital gains tax.

  • T-Series Mutual Funds

    “T” is for Tax-Efficient

    Successful investing relies on many factors, including employing tax-efficient strategies. T-Series Funds are mutual funds that are designed to be tax efficient. In fact, the “T” stands for tax and implies they are tax-efficient.

    If you need a tax-efficient monthly income stream from your investments, without sacrificing the potential for capital gains, T-Series Funds could be for you. Designed for non-registered accounts, T-Series Funds are becoming increasingly popular.

    They are attractive to investors because they distribute return of capital (ROC), which is not immediately taxable. When mutual funds make payouts in the form of interest, dividends or capital gains, they are taxed in the same year they are distributed. But the distributions from T-Series Funds are not taxed until your investment capital is depleted. In other words, not until the adjusted cost base (ACB) reaches zero – or the units are sold.

    Benefits

    A fund that gives you control over when you incur a tax liability, allowing you to defer taxes, can be beneficial in several ways. You will benefit from higher after-tax income and the compounding effects of a larger investment. Plus, you may also be able to reduce the amount of tax you pay in the future, due to lower marginal tax rates or lower capital-gains inclusion rates. When considering T-Series Funds, look at payout rates, as they vary.

    Also, look for T-Series Funds that make investment sense: Poor returns will result in smaller monthly distributions. Some funds are designed so that the ROC distribution takes up all or most of the expected return, enabling you to maintain your original investment in the fund. Finding the right investment vehicle for the right investor is part of the art of financial management.

    The flexibility and convenience of T-Series Funds could be ideal for you.

    T-Series Mutual Funds

    • Investors looking for flexible income options
    • Investors who are seeking tax-efficient income outside of a registered portfolio
    • Investors who are looking to defer the taxable income on an unregistered portfolio
    • Seniors who want to receive income from their investments while preserving their Old Age Security (OAS)/Guaranteed Income Supplement (GIS).

    As of January 1, 2017, Corporate Class Funds have lost some of their tax advantages. The 2016 Federal Budget told us that exchanging units of one corporate-class fund for another would no longer be tax-deferred. This change has eliminated the ability of investors to switch between funds in corporate class investments without paying capital gains tax.

  • Top Ten Tax Tips

    Top Ten Tax Tips

    1. Can you defer capital gains outside of your RRSP?

    As you know a key advantage of contributing to an RRSP is the ability to defer taxable income and capital gains to a future date when you are in a lower tax bracket, usually upon retirement. There is another strategy available to defer capital gains tax for investments outside of your RRSP through Corporate Class funds offered by many of the mutual fund companies today.

    2. Have you considered all possibilities for income splitting?

    If you’re over age 65 and receive the Old Age Security Pension (OAS) or if you have received Employment Insurance (EI) benefits, income-splitting opportunities may eliminate or reduce the OAS or the EI claw-back.

    3. Are you over 71 and still have RRSP contribution room?

    If you are over 71 you can’t put any more money into an RRSP in your name. But, if your spouse or common-law partner is age 71 or younger, you may use your RRSP contribution room by contributing to a spousal RRSP. This will give you a tax deduction and increase your spouse’s or common-law partner’s income in future years when the funds are withdrawn – thus accomplishing a form of income splitting on retirement.

    4. Do you have a child under the age of 18 that has earned income?

    Even if your child does not have to pay taxes, filing a tax return will create RRSP contribution room in respect of any earned income. Contributions that are made in your child’s RRSP don’t have to be deducted from income in the year they are made. Instead, the deduction can be carried forward indefinitely and deducted in a future year when the income is higher. Meanwhile, the money is growing tax-free inside the RRSP.

    5. Upon death, should you transfer property to a surviving spouse, common-law partner or testamentary spouse trust at the adjusted cost base (ACB)?

    The transfer of capital property to the surviving spouse, common-law partner or testamentary spousal trust is generally done at the adjusted cost base (ACB) in order to defer potential capital gains tax until the property is disposed of or upon the surviving spouse’s or common-law partner’s death. If the deceased’s income is low, it may be advantageous to trigger all or part of the capital gains to be reported on the final return and have the capital gains taxed to the deceased.

    6. Did you receive a retiring allowance this year?

    You may still be able to contribute the eligible amount to your RRSP without affecting your RRSP contribution room, even if you did not elect for the transfer to be processed directly from your employer. This option is only available for up to 60 days after the year-end. Please note that payments for unused sick leave qualify as “retiring allowance,” however payments for accumulated vacation leave do not qualify.

    7. Not sure whether to accumulate savings for your children’s post-secondary education in an informal in-trust account or a Registered Education Savings Plan (RESP)?

    In an in-trust account, capital gains may be taxed in the hands of the minor child while other income (e.g. interest) may be attributed back to you, the contributor. RESPs defer taxes on all income earned in the investment until the funds are withdrawn when the beneficiary is pursuing his or her post-secondary education. There are many complex rules to both savings vehicles that you should investigate further before making any final decisions on which vehicle is better for you.

    8. Is the interest tax deductible on an investment loan?

    Generally, the interest paid on an investment loan is tax-deductible. The income tax act explicitly states that any interest expense incurred to purchase property that produces income is tax-deductible. 9. Are you looking for ways to minimize probate fees on your estate?

    There are many strategies available to reduce probate fees and minimize estate costs. A common method used is to hold property as joint tenants with rights of survivorship (not available in Quebec). Jointly held property passes automatically to surviving joint owner(s) and therefore does not form part of the estate and is not subject to probate tax.

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