Tax-efficiency means to minimize the amount of taxes that we owe in a way that is legally permissible and consistent within the limits of Canada Revenue Agency. Certainly, a strategy for your 100% tax-efficient portfolio is not entitled to any investment income at all, but while you can, under certain legal issues.

You’re probably wondering: why all this complexity around the taxes in the first place? First it is important to recognize that government is not all investments are treated equally. The government provides a favorable tax treatment of certain revenue and no to others.

In addition to the different tax treatment, investors should be aware of the various tax shelter government programs. Accounts such as RRSPs, RESP, TSFAs are tax advantaged accounts, since the income earned in these accounts are sheltered from the Canada Revenue Agency. Only when the investor actually makes a withdrawal, the tax is then paid to the government. But otherwise the money grows tax free.

Now the government is by no means a bad service. It lets us live on their land. It provides us with police protection, and fire. When we get sick, it gives us. Supervision FDA provide good labeling and product manufacturers live up to their claims .. So there are a lot of services the government provides and that we are very happy with so many positive qualities in our partner.

But most experts agree that investors should benefit from a tax-advantaged accounts. Unfortunately there are limits on how much money can be allocated in one year in these programs. Wealthy investors can quickly reach the maximum contribution limits for tax-advantaged accounts like a TFSA which is $ 5,000 per year. As a result, many wealthy investors forced to hold a significant percentage of their assets in taxable accounts. This may include investment companies, two challenges: What kind of assets you should take that into account, and how can these accounts be used together as part of an overall tax strategy?

It is generally best to keep items such as bonds, REITs, GIC in tax sheltered accounts, mainly because interest does not receive any favorable tax treatment. Therefore, a tax shelter account, such as an RRSP will shelter income from taxes that would otherwise have been payable if those same investments were held outside the RRSP.

In contrast, the dividend paying stocks are held outside an RRSP as a dividend will receive favorable tax treatment and if the investor gets the benefit of paying a lower tax rate on dividends.

By now, you can show that tax efficiency is all about seeing your portfolio structure in a way that the amount of income tax they pay to the government minimized. Not only is important to keep in mind the different tax treatment of different revenue streams, but it is equally important to be aware of the various tax shelters available.

Once you get your most effective assets in the accounts, you can start thinking holistically about your investment strategy. This is where a private wealth management company plays an important role – helping clients realize the greatest tax efficiencies by establishing a strategy in advance – sometimes years in advance – and adapting it as circumstances require.