Making tax effeciency a priority

Certain tax strategies can keep more money in your pocket

Do you think that you paid more than your fair share of income taxes this year? Were some or all of your government benefits clawed back? It may be possible that your investments can be structured to defer income taxes payable, and, in this article we will be discussing the benefits and characteristics of corporate class and ‘T’ series mutual funds.

Tax efficiency is a priority for many investors and one way to achieve this is to keep as much money as possible compounding inside the investment. This happens automatically for registered investments, but for non-registered investments, the investment has to be chosen with that goal in mind. One of these types of investments is known as ‘T’ series funds; they will maintain a monthly cash flow and can reduce the amount of income you currently declare on your tax return. The distributions are still taxed at your marginal tax rate, but the tax treatment varies according to the type of distribution received.  The payouts can be in the form of interest, dividends, capital gains and return of capital or a combination of these. Interest is added to income in the year it is received and is fully taxable, eligible dividends are taxed more favorably than interest due to the dividend tax credit and only 50 per cent of a capital gain is taxable. ROC, (return of capital) is a return of your original capital and is not taxable. ROC distributions decrease the ACB (adjusted cost base) of your mutual fund units and offer several benefits if you require cash flow from your investments. These include a consistent monthly cash flow, tax deferral and the possibility of lower taxes. You can defer capital gains tax by choosing when to sell your investment according to your personal tax situation.  For example, you could be in a lower tax bracket in the future, or, when your invested capital runs out and your ACB reaches zero, distributions are taxed as capital gains.

Corporate Class funds allow you to switch funds within the corporation without any capital gains or losses being realized. The payment of taxes on any capital gains from growth of the investments is deferred until the money is withdrawn from the corporate class structure. This means the money you would have had to use to pay taxes is still available for investment. In addition to this important tax deferral benefit, Corporate Class can also make it possible to reduce the tax payable on the growth of your investments by minimizing distributions.  Also, if distributions are made, they will be in the form of Canadian dividends or capital gains, which currently have lower tax rates than interest. In addition, when you do redeem your corporate class investments, all the growth would be taxed at the more favourable capital gains rate.

These tax strategies are not as complicated as they may sound, talk to your financial advisor and ask if you could benefit from corporate class or T series mutual funds. Tax deferral and tax efficient monthly income can be a valuable tool for you to structure a tax-efficient portfolio solution, and can result in more money in your pocket today.

For further information, Carol Plaisier, CFP®, Investment Advisor with DWM Securities Inc., can be reached at the DundeeWealth office in Parksville (250) 248-2399, or by e-mail: Web:

This article was prepared by Carol Plaisier, CFP®, FMA, AMP (Accredited Mortgage Professional) who is an Investment Advisor with DWM Securities Inc.  This is not an official publication of DWM Securities Inc. and the  views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of DWM Securities Inc.

DWM Securities Inc., Member-Canadian Investor Protection Fund, is a DundeeWealth Inc. Company.

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