Tax efficient investing is minimizing the after-tax return of an investment. Important consideration must be based on the investment choice matched to the client’s suitability.
This is the time of year of annual tax filing, and reviewing our investment tax slips.
Do you enjoy including T3 and T5 income on your annual tax return?
This means you pay CRA an additional percentage of your investment earnings back to the government in the form of additional taxes.
Do you want to explore the option of tax efficient investing to understand tax efficient options available?
The big buzz in the investment world today is with the TFSA, and it is a great concept.
The Tax Free Savings Account is limited to the annual contribution room of $5,000 per year.
If you contributed the annual maximum allowed since the TFSA started, you now have invested a total of $15,000 per adult over the last three years.
The other buzz should be about Corporate Class investing, to allow us to invest any amount of money with no limits attached.
Example, you can invest $500,000 within this class structure, and pay minimal or no annual taxation.
You can reduce, defer or avoid taxable income each year from T3 and T5 income with Corporate Class investing.
This style of investing has been available for over a decade.
I have invested my own non-registered investments since 2003 in the Corporate Class structure, and my T3 and T5 income has almost been eliminated.
I educate all my clients on investing in a tax efficient manner outside of their registered investments.
Who can benefit from Corporate Class investing?
Clients who hold non-registered assets, and received T3 and T5 income each year can benefit.
There are many benefits to using Corporate Class funds.
Annual taxation can be avoided or delayed, and capital gains and losses can be timed by you, the client, in the future to minimize annual taxation.
When an income stream is needed from a Corporate Class, a T-class provides a tax-efficient cash flow in many different types of investments.
This provides monthly, semi annual or annual income at the client’s discretion.
T-class investing is a return of capital (ROC), and the portion that is return of capital is not taxed.
It lowers the adjusted cost base of the investment by an amount equal to the distribution value.
Conservative investors can choose balanced funds with a blend of stocks, bonds and cash to take advantage of tax efficient investing.
Bonds typically pay interest income that is 100 per cent taxable. You can put the bond portion in a balanced mutual fund within the corporate tax structure.
Instead of using regular mutual funds for non-registered investing, you should invest in a corporate class structure.
Corporate class and T-class means you pay less tax annually by investing like the pro’s do.
No one else cares as much about your tax efficient investment portfolio as you should.
Doreen Smith is a Certified Financial Planner with Capri Wealth Management and Manulife Securities Investment Services Inc. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.
250-860-7144, ext 114