Pay less tax “Corporate Class”

Many Canadians will pay more tax than they should. Taking the time to learn about tax planning could result in retiring earlier, extending vacations, purchasing that new car sooner than expected or any of a long list of items that enhance your lifestyle. The following paragraphs will give you information on some of the areas that will help you save money on taxes and highlight an effective, but less utilized tool, “Corporate Class” investing.

Everyone is aware that investing in an RRSP will reduce your tax bill, but the fact that your investment can grow without being taxed can be as important as the initial deduction you receive. There are numerous sources of information that illustrate the advantages of incorporating RRSPs into your financial plan. There are also numerous sources that attempt to persuade you to sell your RRSPs. Be aware of these attempts to access your money because they typically are designed to funnel the proceeds into an investment that benefits the salesperson who is offering the advice — not you.

On Jan. 1, 2009, every Canadian who was 18 years of age or older was allowed to invest $5,000 into a “Tax Free Savings Account” (TFSA). Every year thereafter, another $5,000 (indexed to inflation) can be added to this account. Although you do not get a deduction for contributing to the account like an RRSP, you will enjoy the same tax sheltering of growth. Additionally, when you withdraw this amount, the proceeds are not included as income.

In addition to RRSPs and TFSAs, the use of “Corporate Class” investing can substantially reduce your tax bill. What is “Corporate Class”? Quite simply, it is a group of mutual funds structured as a corporation rather than a trust. The following are ways that it can be used:

• To minimize or eliminate annual distributions.
• To convert highly taxed interest income into tax-efficient capital gains.
• To rebalance your portfolio on a regular basis without triggering capital gains or losses.
• To potentially lower your taxes, because you can defer them and choose when to realize capital gains.
• To allow for tax-efficient charitable donation planning.
• To preserve or increase income-tested government benefits.

The power of tax-deferred compounding associated with “Corporate Class” investing results in you having more money to spend in the future. The investment choices are typically the same as those outside of the “Corporate Class” structure, so you don’t have to alter your investment mix.

If you want to pay less tax, you need to do your homework or work with a financial professional who can assist you in this area. My clients know the importance of tax planning and have become knowledgeable in this area as a result of the annual reviews we conduct. This aspect of financial planning can benefit you immensely, so take the time to evaluate your options and become knowledgeable — or continue to pay too much tax. •

Peter Murray is a senior financial advisor with Assante Capital Management Ltd. (Member CIPF) in Calgary. Email your questions or comments to Peter at pmurray@assante.com or check his website at assante.com/advisors/pmurray