Every one wants to pay more taxes than they have to - and there are ways you can reduce taxes on investments as they grow.
The easiest and most effective move is to make full use of TFSAs and RRSPs — both are tax shelters that reduce the taxes you have to pay on investment growth, says Jason Heath.
RRSP contributions typically make sense if your income is moderate to high, as you don’t pay taxes on the money contributed, although you do have to pay taxes on RRSP withdrawals, your tax bracket will likely be lower after you retire If your income is low, you probably want to start with TFSA.
If you maxed out both tax shelters and have investments outside of RRSP and TFSA, you can reduce your overall taxes by keeping fixed income investments like bonds and GICs inside the shelters and keeping your stocks and other equity investments in regular accounts.
That s because you generally have to pay more tax on gains for bonds and GICs than you do in equities, says Heath.
Fixed income investments paying interest income are taxed on the highest rate in your nonregistered account. So, if you happen to have money in not-registered TFSA, RRSP and IRA accounts, you may want to hold fixed-income investments like bonds in your RRSP, said Heath.
There are other considerations, including the size of the accounts and when you need to take withdrawals from the accounts, but financial planning can boost your overall portfolio returns, said Heath.