Six principles of tax-smart investing

Principle No. 1 — Focusing on your after-tax returns can — literally — pay dividends.

Interest income is fully taxable at your marginal tax rate. However, only one half of any capital gain is taxable at your marginal rate. And eligible Canadian-source dividends are generally taxed even less.

Principle No. 2 — Maximizing your RRSP means more than just maximizing your RRSP contributions.

Your RRSP offers two wellknown tax advantages: contributions are tax-deductible and grow free of annual taxes. If your annual income fluctuates, consider making your RRSP contribution as usual in a lower-income year, but wait until a higher-income year to claim it for a potentially greater tax deduction.

Principle No. 3 — Don’t settle for just tax-deferred growth when you can get taxfree growth too.

With an RRSP, your investment earnings grow on taxdeferred basis until you make withdrawals. With the TaxFree Savings Account, on the other hand, your investment earnings grow on a tax-free basis — meaning you never pay tax, even when you make withdrawals.

Principle No. 4 — Create a tax-efficient retirement income stream.

At 65 years of age, you can split your RIF income with your spouse. Because of Canada’s marginal tax rates, a couple with two similar tax rates generally pays less combined tax than a couple with two different tax rates.

Principle No. 5 — Enhance retirement income with special tax-advantaged plans for business owners.

An Individual Pension Plan allows business owners and incorporated professionals like dentists and vets to make larger tax-deductible contributions compared to an

RRSP.

Principle No. 6 — Enhance your legacy the tax-smart way.

One way to deal with these potentially large taxes is through the use of insurancebased strategies, which cover the taxes, maximizing your legacy.

Please contact us for more information on tax-smart investing.

A. Craig Elder, CFP, FMA, CIM, FCSI, is a Vice-President, Portfolio Manager and Wealth Advisor with RBC Dominion Securities Inc. in Medicine Hat. RBC Dominion Securities is a member of the Canadian Investor Protection Fund. Source material provided by RBC Wealth Management. For more information on this and other financial strategies, contact Craig at www.acelder. ca or 403-504-2723.