6 Tips To Minimize Tax On Your Investments

by Tax Guy - Burlington Accountant on June 17, 2009 Print This Post Print This Post

Here are 6 simple tips you can use to reduce the amount of tax you pay on your investments.

  1. Invest Inside Your RRSP. Investments inside your RRSP will grow tax-deferred as long as they are inside your RRSP. By maximizing your RRSP contribution annually, you can reduce your current income tax and then invest the contribution on a tax-deferred basis until the funds are withdrawn.
  2. Maximize the TFSA. If you expect to be in a lower tax bracket in retirement, you should first maximize your RRSP and the maximize your TFSA. While you cannot make a deduction for the TFSA contribution, your investments will grow tax-free inside the account and withdrawals will not be subject to tax.
  3. Invest in stocks outside of your non-registered accounts. Dividends and capital gains receive better tax treatment than interest income. If you are in the top tax bracket, you should consider investing in stocks that do not pay dividends and hold them outside your registered accounts and hold the dividend paying stocks inside registered accounts.
  4. Hold interest earning investments inside registered accounts. When you have a sufficiently large enough portfolio, placing the income investments in registered accounts eliminated or defers the tax on these investments.
  5. Hold US stocks inside your RRSP but not in your TFSA. Under the Canada-US Tax Treaty there is no withholding tax on US stocks held inside your RRSP or RRIF. Withholding tax will still apply to US stocks in your TFSA and cannot be claimed as a tax credit.
  6. Avoid turning over your investments unnecessarily. Selling investments when you don’t need to can trigger gains and income tax consequences.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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George June 17, 2009 at 6:41 am

“Invest in stocks outside of your non-registered accounts. ”

Outside of a non-registered account? Wouldn’t that be in a registered account? Something tells me that’s a typo…

tax Guy June 17, 2009 at 6:52 am

@ George:

Canadian stocks have preferential treatment of dividends. If someone is in the top tax bracket, it may make sense to hold dividend paying stock outside an RRSP and interest earning or foreign stocks inside an RRSP.

Similarly, capital gains have preferred treatment and tax deferral. It may make sense to hold them outside an RRSP.

Anthony December 27, 2009 at 6:26 pm

Hi there. I know this was posted 6 months ago but I agree with George above. Tip #3 is backwards… It should say “Invest in stocks outside of your registered accounts” not “non-registered”.

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