Saving Yourself During Tax Season
Every April, our clients share the same experience of submitting their forms to be audited by the government. Most Canadians are quite vigilant about structuring their investments to lessen the blow, or have professionals to assist where necessary. I have outlined a few of the ways to minimize your tax burden through tax efficient securities for your non-registered investment accounts. That means staying away from GICs and bonds (their interest payments are taxed at the top rate). Keep those in your RRSPs, RRIFs, TFSAs and RESPs.
Focus instead on investments that provide tax breaks such as:
Dividend paying stocks: Dividends from taxable Canadian companies are eligible for the dividend tax credit, which significantly reduces the effective rate you pay. The yields on many blue chip companies, including banks and utilities, are three percent or more and can be a great opportunity to earn extra cash and save value.
Real estate investment trusts (REITs): The tax rules governing REITs are complex and the savings vary from one trust to another and from year to year. Basically, it comes down to how a specific REIT distributes their income, because the tax characteristics may influence whether you would hold it in a registered/non-registered account. You or your advisor must do some research to find the ones that are most tax effective, but it can really be worth the effort. RioCan is a REIT that trades on the TSX (REI.UN) that has raised their dividend over time and currently receives tax relief.
Limited Partnerships: Some limited partnerships (LPs) that trade on the TSX offer tax breaks but, as with REITs, you have to do some research to find the ones that are most efficient. One example that currently trades on the TSX is Brookfield Renewable Energy Partners (BEP.UN). Without getting too deep into the details, in 2014 only about 30 percent of their yearly distribution was fully taxed and the rest received some relief either through the Canadian dividend tax credit or tax deferred return of capital.
Tax savings should never fully influence your investment decisions because there are other factors to consider, but it can be dually beneficial to find strong companies that also save during tax season. We typically like to invest in strong companies that pay a good dividend and have a history of raising it over time.
If you would like to meet with us, please contact me directly with the details provided below.
On behalf of Holyk Doran Wealth Management,
Berent Hagen
604 623 6758
www.holykdoran.ca
National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX) National Bank Financial is a member of the Canadian Investor Protection Fund. Please consult your tax advisor regarding your particular situation. National Bank Financial is not a tax advisor and clients should seek professional advice on tax-related matters. Please note that comments included in this publication are not intended to be a definitive analysis of tax law. The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances. The securities or sectors mentioned herein are not suitable for all types of investors and should not be considered as recommendations. Please consult Holyk Doran Wealth Management to verify whether the securities or sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors.