How to deploy your investments to cut your tax bill

Take full advantage of registered plans and tax-advantaged asset classes.

Matthew Elder 24 July, 2015 | 5:00PM

Income tax is an expensive reality for Canadian investors. In many cases between one-third and one-half of investment income is lost to the tax collector. But by making the most of the tax-saving vehicles available, you can minimize the amount of tax you pay on your investments.

For the most part, this means keeping more highly taxed types of investments in tax-advantaged accounts, like RRSPs and TFSAs, and allocating investments that already have built-in tax breaks to a conventional "taxable" account. The following are some basic steps you can take to organize various streams of income so as to minimize the amount of income tax your pay.

RRSPs offer deferral, income-splitting. The registered retirement savings plan (RRSP) and its post-retirement successor, the registered retirement income fund (RRIF), are at the top of the list because they provide powerful, long-term deferrals of tax payable. These deferrals apply to the capital you invest (usually from employment earnings) in an RRSP, as well as the income and capital gains earned within the RRSP and, later, the RRIF.

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Matthew Elder

Matthew Elder