Tax Planning

Retirement Planning

Nowadays, using a retirement plan is one of the most prevalent way to efficiently minimize taxes for saving purposes. Individuals can contribute their money into some of the following accounts to help reduce or defer tax liability: a Registered Retirement Savings Plan (RRSP), a Tax Free Savings Account (TFSA), a Pooled Registered Pension Plan (PRPPs) and an Individual Pension Plan (IPP) are amongst the more popular options for contributing and saving money. Of course, there are many more types of accounts and savings plans. There are several benefits to every type of account or pension plan. However, the benefits do vary from one type of account to another. Eg. RRSPs can be used to buy a home and finance higher education. TFSAs allow you to contribute money without a tax deduction unlike RRSPs. There are several complexities with the above mentioned account types in regards to retirement planning and we highly suggest you discuss the tax implications of your options either with a Certified General Accountant, a Professional Investment Advisor or a top Wealth Management Firm in your area.

Tax Loss Harvesting

Tax loss harvesting is an additional method of tax management in regards to investment planning. Capital gains will need to be paid after an investor sells any stock for a profit. Tax loss harvesting is beneficial because it has the ability to use losses in the portfolio to offset the stock’s capital gains. Eg. An investor had $1,000 in long-term capital gains for the year. The investor also sold losing investments that totaled $1,000 in losses, the investor’s capital gain would be offset and bring the final total to $0. If one plans to buy back the losing investments, he/she must wait a minimum of 30 days before repurchasing to avoid experiencing a wash sale. A wash sale is the result of selling a security at a loss and repurchasing the same or noticeably identical security shortly after or before this sale.

Investors could consider selling losing positions, even when there were no capital gains during the present year. There is no expiration date for capital losses to be carried over for future purposes, and these losses could be used to counterbalance any future capital gains. Another advantage to selling losing positions in a stock is that $3,000 can be used to decrease regular income. So if an investor had a minimum of $3,000 in net capital losses for the year, the $100,000 income will be reduced to $97,000.

Income splitting

Income splitting is another way of wording the act of dividing taxes and suggests the capability to take an income and spread it among a number of other taxpayers. Eg. Scenario 1 has one individual paying tax on $100,000. Scenario 2 has two individuals (a couple) paying tax on $50,000 each. One would much rather have the second situation, the scenario with the couple. Reason being is that the couple will be in a lower tax bracket with their salaries of $50,000 and will therefore, pay less taxes than the individual earning a $100,000 salary even if both scenarios earn an equal amount of income. The best Investment Advisors and top Financial Planners can certainly give individuals who are seeking advice on tax planning, an abundance of options and strategies to divide income that are within the rules and regulations of the CRA. Spousal RRSPs, Splitting CPP, Pension splitting, RESPs and Family Trusts are a few of the many alternatives an individual might utilize to be more tax-efficient.