Linda is living a comfortable retirement. She has a hefty pension, receives Old Age Security and CPP, RRIF and annuity income, and has a non-registered investment portfolio. She has been told that dividend-paying stocks are good investments and offer some tax relief through the dividend tax credit.
That sounded like a good idea. But then seemingly out of the blue the government started clawing back her Old Age Security based in part on her grossed up dividend income. It turns out the dividend tax credit isn’t even considered when the government decides how much of her OAS she gets to keep.
And what about Penelope? For the life of her she can’t figure out why she lost her Guaranteed Income Supplement. She has little in the way of income. But then she received an inheritance that provided her with (you guessed it) dividend income. Once it is grossed up for taxes, her GIS is clawed back at a rate of close to 75 cents on the dollar. Then there’s the HST tax credit as well as the subsidy she loses on her MSP premiums, plus whatever taxes she has to pay. She might as well not even receive dividends.
Ed’s another story — a reformed day-trader who still had something left when he gave up trying to speculate on the next big thing (though he did fall off the wagon to pick up some Facebook). To his credit he made some brilliant investment decisions during the last bull market, but has had trouble holding on to his gains during corrections. But now he wants to invest responsibly — in things that are more conservative. The problem is, however, that he has capital loss carry-forwards from his days as a stock market guru and would like to put them to use.
Then there is Jennifer — a widow with no children of her own, but one stepson who will receive her investment portfolio after she is gone. If Jennifer had her druthers, her estate would pay all the investment taxes after she is gone — rather than her paying them now.
It turns out they can all have their druthers.
Using a recently developed process, investors today have the ability to choose their poison. No longer does investing in bonds, for example, necessarily mean interest income.
Instead — when, how, and if you pay taxes can be your decision, and can be based on your individual circumstances.
Linda can have her dividends taxed primarily as capital gains, thereby helping to preserve her Old Age Security.
Penelope can invest in a bond portfolio with the bulk of the taxes deferred to a time of her choosing.
Ed can invest in safer investments, but elect to have income characterized as capital gains.
And Jennifer can still receive income from her portfolio, but defer the bulk of the taxes until after she is gone.
How is all this possible?
There is no simple answer as the solutions will vary depending on individual circumstances. But the tools and the process are there for your benefit.
Feel free to call or e-mail for more on this topic.
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.
This article is for information only. Raymond James Ltd. is a member of Canadian Investor Protection Fund.
For more information feel free to call Jim at 250-594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.