Reduce Your Investment Tax Obligations

Discover different ways of reducing the taxes you pay on your investments.

Contribute to Your RRSP

By contributing to an RRSP, you reduce your taxable income and decrease the amount of tax you have to pay today. The funds in your RRSP remain tax-sheltered until your retirement. When you need that money in retirement, you're likely to be in a lower tax bracket and that money will consequently be taxed at a lower rate.

Contribute to Your TFSA

By opting for the Tax Free Savings Account (TFSA), the investment income you earn in your TFSA is not taxable, even when you make withdrawals. The TFSA helps you meet your savings needs throughout your life since you can withdraw funds from your TFSA at any time for any purpose. Also, if you do not make the maximum annual contribution, your unused contribution room is carried forward to subsequent years.

Put Heavily-Taxed Investment Into Your RRSP or Your TFSA

If your retirement portfolio includes a non-registered account as well as a registered account (RRSP or TFSA), make sure the most heavily-taxed investments are held in your RRSP or TFSA. Typically, the most heavily taxed investments are interest-generating assets such as guaranteed investment certificates, strip coupons, bonds and bond funds. Any income generated inside your RRSP remains tax-sheltered until retirement. Even though tax considerations are an important part of your investment strategy, make sure that strategy takes your investor profile into account.

Split Income With Your Spouse

Plan ahead and take advantage of income splitting, a strategy that will provide you and your spouse with a more favourable tax treatment during retirement. Income splitting is advantageous because two moderate incomes are taxed less than a higher income that is equivalent to the sum of the two smaller ones.

And if your spouse earns less than you do, contribute to a spousal RRSP. You'll wind up saving a substantial amount of income tax.

Know When to Invest

Timing is important. For instance, capital gains generated by mutual funds in a non-registered portfolio can result in a tax obligation, even when you haven't actually held the fund units for the entire year.