The taxation of investments has a significant effect on retirement outcomes. Tax “leakage” throughout your life can be managed to reduce taxes paid, maximize after-tax cash flow, and improve lifestyles.
Pacific Spirit assists you and your family both during your income earning years and also your retirement years to reduce current taxation, shift income from a higher income (higher tax rate) year to a lower income (lower tax rate) year, and build assets which are completely tax-free. We can also assist with ideas to reduce the tax payable upon death and on inter-generational wealth transfers.
The following table summarizes the currently legislated marginal tax rates payable on income earned by a BC resident in 2017.
The key takeaways to an investor are:
- Two types of investment income enjoy significant tax advantages: Canadian dividends and capital gains. For lower income taxpayers Canadian dividend income is especially attractive.
- Capital gains are only taxed when realized (i.e. the investment is sold). Gains can accrue and grow on a tax-deferred basis almost indefinitely.
- Tax Free Savings Accounts (TFSAs) are a gift from tax heaven. All income earned inside a TFSA is tax-free as are TFSA withdrawals.
- Other things being equal you will want to hold equities which attract capital gains and Canadian dividends in your taxable hands and interest earning investments in your RRSP/RRIF. If you only own a RRSP/RRIF then you should hold a mix of equities and fixed income inside your RRSP/RRIF in proportion to your target asset mix.
- Ineligible dividends are dividends paid by a corporation from income taxed at low rates (e.g. dividends paid by a company from income subject to the small business deduction). Eligible dividends are dividends paid by a corporation from income taxed at high rates (e.g. dividends paid by a public company).
- Negative tax rates on Canadian dividend income for lower income taxpayers can only be used to reduce the taxes payable on income from other sources.
We are here to assist you.
Team at Pacific Spirit Investment Management Inc.