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People love to complain about taxes. Retirees especially (who are living on budgets) are among the least likely to appreciate surprises at tax time. Whether through tax on investment income, or the claw-back of benefits — it seems like it is those who had the foresight to save who get hit the hardest!

Our tax system is peculiar, and it doesn’t always seem to make sense. Take dividends, for example. If you are a retiree earning very little, dividend income can be devastating — potentially resulting in effective tax rates of 65 per cent or more when you factor in the loss of benefits, reduction in Pharmacare subsidies, etc.

Then there are those at the opposite end of the income scale — who are having Old Security clawed back at a rate of 15 cents on the dollar of interest income — or over 20 cents in the case of grossed up dividends.

What if I told you there are strategies that can help avoid all of this? — that you can choose whether or not to pay taxes on investment income, and whether your investment income will impact your benefits. What if I told you that it may be possible to structure your non-registered assets to actually achieve a negative investment tax rate?

Here is what it takes:

1. an in-depth knowledge of how investments are taxed at different levels of income;

2. an understanding of how government benefits are impacted by your various sources of income;

3. knowing how to avoid the estate planning traps your decisions can lead to;

4. an awareness of the different types of investment vehicles that can allow you to decide how to classify your investment income;

5. knowing how not to let the tax tail wag the investment dog — making sure that you earn a steady and reliable rate of return;

6. the ability to make an informed decision as to whether it is worthwhile to pursue this elusive, negative tax rate — knowing not only what you can gain, but also understanding the possible tradeoffs;

7. being able to apply all of this knowledge in a way that maximizes what you get to keep, without undermining estate planning objectives you may have.

It is a matter best left to an expert.



Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). The views of the author do not necessarily reflect those of RJL. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. This article is for information only.  Securities are offered through Raymond James Ltd., member-Canadian Investor Protection Fund.  For more information feel free to call Jim at 250-594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca


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