Smart Tips to Reduce Your Income Tax

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By Janet White, May 30, 2019

One of the most overlooked strategies for improving your portfolio’s return is to minimize the tax burden on your investments. By structuring your portfolio to take advantage of our tax laws, your Investment Advisor may help you pay less tax, keep more of your returns and, over time, accumulate significantly more wealth. Here are some straightforward and effective ways to reduce the taxes paid on your portfolio and potentially improve your portfolio’s returns.

  • Invest in an RRSP:  Defer taxes on your investment income and lower your taxable income by making an annual RRSP contribution, subject to your maximum allowable room. Your CRA Notice of Assessment will tell you how much RRSP room you have for the following tax year. If you receive a tax refund, consider contributing it early to your RRSP. Or, set up a monthly plan to smooth out your contributions. Either way, your money will be tax-deferred sooner.
  • Create tax deductions:  If you hold investments in a non-registered account and have available RRSP room, you may want to consider transferring them directly to your RRSP, or selling them and using the proceeds to contribute to your RRSP. Either way, you can create a deduction against your taxable income.
    Tax rules don’t allow the triggering of a capital loss when you transfer securities to an RRSP. If you have a capital loss, consider selling first, then contribute the funds to your RRSP. You get the deduction against taxable income and you may be able to use the capital loss to offset capital gains to further reduce your taxable income.
  • Don’t view a TFSA as just a savings account:  Despite its name, TFSA contributions can be invested in a wide variety of investment options, including stocks, mutual funds and ETFs. There are no taxes paid on the income earned for investments held in a TFSA, whether the income is dividends, interest or capital gains. TFSAs are ideal vehicles for holding investments with significant appreciation potential. However, capital losses from investments held in TFSAs cannot be used to offset capital gains in non-registered accounts. By investing in a TFSA, you can potentially create a non-taxable income stream, which can be helpful in avoiding clawbacks in the Old Age Security (OAS) program or Guaranteed Income Supplement (GIS).
  • Review asset allocation and location:  Investment income can be taxed in different ways depending on the type of income and account. Fully taxable investments, GICs, bonds, savings accounts and foreign dividend-paying stocks, are better suited in registered accounts where the income can be tax-deferred. Investments with capital gain (or loss) potential or eligibility for dividend tax credits are better held in non-registered accounts to take advantage of their preferential tax treatment.
  • Harvest capital losses:  The amount of capital gains subject to tax in a given year is based on the calculation of net capital gains (sum of all capital gains less all capital losses realized in the year). If, in a given year, capital losses are greater than taxable gains, the net loss can be carried back up to three years to reduce net capital gains previously reported to recoup paid tax, or can be carried forward indefinitely to apply against future capital gains. Before year-end, review whether the sale of investments with accrued losses can offset gains already realized in the year. This of course depends on your investment strategy and your outlook for the security under consideration.
  • Make your investment management fees tax deductible:  Fee-based accounts charge an annual fee that may be used as a tax deduction. Fees on mutual funds (the Management Expense Ratio, or MER) and transactional accounts are not tax deductible. Furthermore, rates on fee-based accounts are typically lower than the MER charged on a mutual fund or transactions charged for trading. The combination of tax deductibility and lower fees can significantly add to your investment performance. For example, a typical fee for a balanced mutual fund is 2.15%, compared to 1.75% for a fee-based account following a similar strategy. For a $250,000 portfolio, a mutual fund portfolio could cost $5,365 annually, compared to $4,375 for a fee-based account.
  • Take advantage of tax-efficient income:  If you need regular annual income, arrange your portfolios to deliver tax-advantaged income types like Canadian eligible dividends, capital gains and/or return of capital rather than high-tax-rate interest or foreign dividends. Depending on your personal situation, some or all of these “tax-preferred incomes” will deliver the same cash flow but with the lowest income tax bill attached.

Managing the tax impact on an investment portfolio can have a significant and positive effect on building your wealth. Experienced Investment Advisors can identify investments designed to defer taxes and reduce the tax you pay.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

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By iA Private Wealth, September 07, 2021 Having a child is an exciting time in life. Before the baby arrives, it’s useful to think about your finances, since raising a child can be both incredibly rewarding and very expensive. While each family is different and costs vary, expect to budget roughly $10,000 to $15,000 a year until your child turns 18 – and then the potential for post-secondary education will add to this cost. Aside from expenses related to food, clothing, personal care, toys, activities, etc., your daycare/babysitting costs largely depend on where you live and how many hours of supervised care your child will require. Funding your family addition Clearly, the more money you can put away, the better your financial situation will be when baby enters the picture. You don’t have to do it all on your own, however. Family and friends might be able to help with gifts, babysitting and hand-me-downs, plus you may qualify for government support. Parents who are away from work to look after their newborn or newly adopted child may receive up to 55% of their earnings in standard Employment Insurance (EI) benefits, to a current weekly maximum of $595. As the chart below illustrates, parents can share the benefits. The eligible period for benefits may last from 55 weeks to 69 weeks (although ‘extended’ benefits beyond 55 weeks provide less support). Benefit name Maximum weeks Benefit rate Weekly max Maternity (for the person giving birth) up to 15 weeks 55% up to $595 Maternity benefits can be followed by parental benefits. You can apply for both at once. Benefit name Maximum weeks Benefit rate Weekly max Standard parental up to 40 weeks, but one parent cannot receive more than 35 weeks of standard benefits 55% up to $595 Extended parental up to 69 weeks, but one parent cannot receive more than 61 weeks of extended benefits 33% up to $357 Source: Government of Canada Canada Child Benefit (CCB) In addition to EI benefits, your family may qualify for the CCB. Payments are based on your adjusted family net income (AFNI) for the previous tax year. For the 2021 benefit period (July 2021 to June 2022), if your family’s AFNI is below $32,028, you qualify for the maximum regular CCB of $6,833 per year for children under six years old, and $5,765 annually for children between six and 17 years old. The maximum benefit gradually decreases for AFNIs above $32,028. Given the pandemic’s impact on many families, there’s also a special 2021 CCB of $300 per quarter for children under six years old, if the AFNI is below $120,000. Registered Education Savings Plan (RESP) The cost of post-secondary education continues to rise. It’s good to consider an RESP, which is a savings and investing program designed to cover some of these costs. Currently, the lifetime RESP contribution limit is $50,000 per student (beneficiary). You may invest in many types of securities, from mutual funds and stocks to bonds and GICs – and the investment growth compounds, tax deferred, until the RESP beneficiary begins withdrawing assets. As an incentive to save, the federal government offers the Canadian Education Savings Grant that matches up to 20% of your contributions, to an annual maximum of $500 and lifetime limit of $7,200. Each province and territory has some form of student grant or loan, so it’s worthwhile to look into programs available in your area. Talk to your Investment Advisor for more details about how RESP contributions and withdrawals work. Other things to consider Review your insurance coverage when preparing to have children. You may want to upgrade your life, disability and critical illness insurance plans to reflect your family addition(s). Also, if you’re covered under a group insurance plan, your children may qualify for certain medical and dental care needs. Update your will as your family grows, so you can include your children as estate beneficiaries. You may also use your will to make physical and financial care arrangements for your children in the event that they’re still minors when you (or both parents) pass away. iA Private Wealth can help you financially prepare for your new arrival. Start by contacting your local iA Private Wealth Investment Advisor today.
Maximizing the Benefit of Philanthropic Giving

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Lower Your Tax Bill Through Charitable Giving

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