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DOLLARS & SENSE

Tax Efficient Investing –Understanding the tax incentives and
savings account right for your personal investment strategy

The government provides tax incentives to encourage individuals to save Deferring Tax through choice of investment
and plan for the future. Some common investment savings accounts are Income tax deferral involves pushing what otherwise would be a
registered retirement savings plan (RRSP) Tax Free Savings account current tax obligation to a future year. By doing so, not only are you
(TFSA) and First time home savings account (FHSA). able to reduce current year’s tax bill and potentially benefit from the
Consider the advantages of these accounts and which ones would benefit time value of money, but you may also be able to pay tax on that income
you the most before investment in a tax exposed non-registered plan. in the future at a lower rate.
RRSP’s If your objective is deferring tax you can chose investments that help
Contributing to an RRSP, including a spousal RRSP, provides you you achieve this goal. These securities are market linked and more
with a tax deduction today, which allows you to defer the tax on your growth oriented. They can include ETF, Shares in companies and
contribution until funds are withdrawn in a future year. In addition, your mutual funds. Mutual funds can allocate income or capital gains as
investments grow on a tax deferred basis within your plan. Contribution capital distributions.
to an RRSP is generally most beneficial when your are in a higher income If your portfolio contains bonds or GIC’s consider structuring these
tax bracket. Withdrawals are taxed as income when you with draw and purchases so that maturity dates are after year end so that the interest
are best deferred until you retire or at a lower income bracket in future. payment may be deferred to the following year- or upon maturity.
The contribution room or accrued amount does carry forward and you Another consideration, is where the investments should be invested if
can allocate contributions in later years when you may have you have different savings plans. If you are using an RRSP
more income. you may want to consider holding more GIC’s or Bonds in
that type of investment as you are taxed upon withdrawal
TFSA’s – therefore, more growth in that account would mean more
While you don’t get to enjoy a tax deduction when you tax payable in future years. Consider what investments
make a contribution to your TFSA, the funds invested grows work best in the type of accounts you are allocating your
tax-free and are not taxed at all upon withdrawal. You can investments into.
withdraw them any time in the future. Because of the tax- In addition, certain investments such as real estate
free attribute, the TFSA may allow you to generate greater investment REITS – as well as some mutual funds
tax savings and faster investment growth in a shorter period distribute non- taxable return of capital payments. Return
of time. Often the TFSA can be used to complement your Erica Tennenbaum, CFP, FCSI of capital distributions can be thought of as tax-deferred
existing savings plans. The TFSA has been open since 2009 Senior Portfolio Manager & income because the distributions aren’t taxable in the year
with annual contributions. If you have not contributed at Wealth Advisor you receive them. Instead, they reduce the cost base of the
all and over the age of 18 at the time – your max allowable would be investment for income tax purposes. The reduced adjusted cost base
$95000.00 today and the annual amount is $7000 for 2025. generally results in a larger capital gain or smaller capital loss when you
FHSA’s eventually dispose of the investment in the future.
The FHSA is a newer registered account to help you save for the purchase Although the objective of these investment choices may be to defer
of your first home – check with your advisor as it is for those that have income and consequently the resulting tax, it is always important to
not owned a home or for those that have not owned a home in the last consider the investment merits of securities first and foremost.
few years . Check with your advisor as there is eligibility criteria . With Hoping these article provides you with a good basis to consider some
a FHSA, you can enjoy tax deductions for your contributions alongside of the benefits available to you as an investor and how to structure
tax-free growth of invested funds. RRSP contributions can still be made your portfolio in order to keep more of what you earn. Investing tax
and deducted. There is a max amount of $40k contribution at $8k per efficiently may help you build and protect more of your wealth. As
year. Withdrawals for a home are tax-free or can be rolled into your always, working with your Advisor and tax advisor, can help you make
Registered account in future. informed decisions on which tax- efficient investments or strategies
Strategies for investing in your non-registered accounts may be most appropriate for you.
If you have maximized your registered account contributions or have Consult with your tax advisor if you require assistance and if you would
determined that investing in those vehicles isn’t appropriate in your like a copy please email us at erica.tennenbaum@rbc.com or call
circumstances, there are a number of strategies you can consider when (519) 621-1307.
investing in your non-registered accounts.

This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest
available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness.
This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information
suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate
entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence.
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