It may not be the most wonderful time of the year, but Canadian tax season is here, and we’re here to help you sort out all the details related to your investment portfolio’s tax implications.
We asked Genus Client Relationship Manager/Partner Thomas Irwin for answers to some of the most commonly asked income tax questions he gets from Genus’ Vancouver-based clients. “Tax planning has an overlay to everything we do, and is an important component to investment management,” he says. “When it comes to providing tax advice, consulting with your accountant is also critical.”
Here are some of the Canadian tax questions he hears most frequently:
When Does It Make Sense to Start Withdrawing From My RRSP?
It depends on your age, income and any additional sources of income you may have, as well as on your need for income. For some it’s best to delay as long as possible, and for others it might make sense to start withdrawing from it earlier. Speak to your wealth manager for specific guidance.
How Do My Investment Choices Affect My Eligibility for Tax Credits or Deductions?
The types of investments you hold and where you invest can affect tax credits and deductions differently. For example, shares bought in a taxable portfolio may be eligible for the dividend tax credit, while an investment made within an RRSP will create a deduction of earned income, reducing taxes payable.
How Can I Reduce the Taxes on My Investment Income?
The tax treatment of income can vary depending on where it is earned. For example, capital gains and dividends are preferentially treated in a taxable portfolio with the capital gains inclusion rate and dividend tax credit. You can also take advantage of the tax-free savings account (TFSA), which offers tax-free investment income.
Is It Better to Contribute to My RRSP or My TFSA? Which Should I Focus on First?
The higher your income, the more you should focus on contributing to your RRSP first as you’ll have a larger tax benefit in reducing your taxable income. The lower your income, the more it makes sense to contribute to your TFSA and hold on to your RRSP room and use it in a future year when your income is higher.
Can TFSA Contribution Space Be Shared Between Spouses?
Everyone has their own contribution room but anyone can make that contribution, so it is a great way to income split between spouses.
How Can I Reduce My Taxes in the Event of My Death?
Here in Canada, your beneficiaries won’t incur any taxes but your estate may have probate and income tax relating to the sale of assets and unwinding of registered plans. There are ways to reduce or eliminate probate fees through tax and estate planning ahead of time to reduce capital gains and income taxes.
How Will My Taxes Be Affected by a Change in My Marital Status or Dependents?
If you go from single to married, you are legally required to file taxes together after you have lived together for 12 months. Each spouse files separately but there are tax credits and deductions that will be considered jointly based on combined family income.
How Do Canadian Tax Laws Apply to My Foreign Investments?
It depends on the tax treaty with the country in question, the type of income, the amount of investment, as to the foreign tax credits and tax treatment of foreign income. Speak to your wealth manager for specific details.
Interested in wealth management and tax guidance for 2023 and beyond? We invite you to register for our free webinar on February 23 with Thomas Irwin and Chartered Professional Accountant Jeff Borden. Watch the recording!