Minimizing
taxes on investment income
Author:
News Canada
(NC)—Bringing
a well diversified, sufficiently mixed portfolio that reflects your risk
tolerance full circle, requires some simple yet effective tax smart strategies.
For example, you may want to review which types of investments you hold inside
your RRSP or RRIF.
It
is common for investors to hold equity investments within their RRSP or RRIF.
However, many investors may not realize that by dividing their holdings between
non-registered and registered portfolios, they may actually reduce their
taxes.
Interest
bearing investments, such as GICs, are actually best held within an RRSP
or RRIF. These investments, when held outside an RRSP or RRIF, are fully
taxable at your marginal tax rate. By placing these interest-bearing investments
within your RRSP or RRIF, they are able to grow tax-sheltered until they
are withdrawn.
Equity
investments that earn dividends or capital gains are most tax-efficient when
held outside your RRSP or RRIF. The former because of the federal tax credit
that is applied because the corporation has already paid tax on its profits
and the latter because only 50 per cent of the capital gain is taxed.
"Dividing
your portfolio is all the more important because when you start to use your
RRSP as a source of income, all holdings are taxed equally, removing any
preferential tax treatments related to your individual investments,"
says Julie Sheen, Vice-President, BMO Term Investments.
For
investors in search of growth opportunities within their RRSP there are term
options available through market-linked GICs. These investments offer growth
potential based on individual market index performance.
A
financial planner at your local bank branch can help you address your taxation
needs when looking at your investment portfolio.
Information
provided by BMO Term Investments. For more information visit your nearest
BMO Bank of Montreal branch, call 1-888-771-0123 or visit www.bmo.com/gic.
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News Canada
