BMO Nesbitt Burns
First Canadian Place
100 King St. W, 38th Floor
As a Chartered Accountant, I know that taxes that have to be paid annually on investment income can be a significant amount, acting as a drag on the growth of your investments over time. Without calculating after-tax returns, you can't know how tax efficient or tax inefficient your portfolio is -- or, for that matter, how much money your investment portfolio is really making for you. The benefit of tax efficiency increases over time, due to the compounding of tax-deferred money. As a result, tax planning is a critical component of any investment plan.
Tax Sheltered Investment Strategies:
Would you believe that there are still ways for high net worth individuals and private corporations to benefit from tax sheltered investment strategies! As a Chartered Accountant, I, along with our Estate and Insurance Advisor John Kimpton specialize in developing and providing clients with innovative tax deferred investment strategies using insurance solutions that can provide higher after-tax cash flow during retirement years while preserving assets for the next generation. These include Insured Retirement Plans (IRPs) and Insured Annuities .
Customized Tax Advantaged Solutions:
In evaluating investments for your portfolio, you should consider the impact of income taxes, since not all investment income is taxed in the same manner. Despite the wide range of investments available, there are three basic types of investment income: interest, capital gains and dividends. Interest income is fully taxed at your marginal tax rate whereas you only pay tax on 50 per cent of a capital gain. Canadian dividends also receive special tax treatment through federal and provincial dividend gross-up and tax credit mechanisms.
To help you effectively manage your portfolio from a tax perspective, there are many strategies available that can be customized to your situation. For example, designing your portfolio to produce primarily capital gains (rather than dividends) is generally ideal for:
- Retirees who wish to minimize withdrawals from registered accounts and/or minimize the impact of investment income on OAS clawbacks.
- Income splitting with children (not attributable back to adult).
- Higher tax rate investors who wish to minimize taxable income.
- Helping harvest current or historical tax losses.
- Foreign investors who wish to minimize withholding taxes.