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Investment Planning Component Five: Tax Planning

Over the last few months, we’ve introduced you to four of the six components that contribute to a successful investment plan.  Last month, we talked about retirement planning. Today, we’ll discuss component number five, tax planning.

The Financial Planning Standards Council of Canada defines tax planning as follow:

Tax planning focuses on the client’s current and future tax obligations and strategies employed to minimize or defer taxation on personal and/or business income.  Tax planning strategies are designed to help strengthen the client’s financial position in current and future tax periods and better enable him to meet his personal goals, needs and priorities.  

But isn’t tax planning just for the wealthy?  It depends on how you define wealthy.  Consider yourself for a moment. Are you saving for retirement?  In all likelihood if you’re reading this you are, and according to the 2015 Statistics Canada Census so are 65.2% of Canadians.  Those retirement savings are going into RRSPs and TFSAs.  RRSPs allow you to save money on taxes during your working years by allowing you to set up a retirement fund (that you get a tax deduction for funding) that will provide you with income while you’re in your retirement years.  For many Canadians, they will take that money out (which is taxable) at a lower rate of tax than they were paying when they were working, providing them with a permanent savings in tax. The TFSA or Tax Free Savings Account was created in 2009 and allows investors to deposit money every year to be invested, with all future growth and withdrawals from the account to be received tax free.  If you’ve never contributed to your TFSA, you can deposit $57,500 today and then $5,500 a year going forward (subject to changes relating to government, inflation, or other). To make a long story short, 65.2% of Canadians are tax planning.

RRSPs and TFSAs are obvious tax planning tools for Canadians; however, are there others?  How can you find out about opportunities that you may be missing out on?

A good place to start is with your financial advisor.  Although a professionally trained tax accountant or lawyer offers you the best advice on the various rules, credits, inclusions, deductions, and changes to the Income Tax Act, financial advisors such as Gary and Lexy Koss can help you develop an investment strategy that can find tax planning opportunities that are appropriate for you and your specific needs.

As an example, they might see planning opportunities in designing your investment portfolio in a more tax efficient manner.   They might also look at your registered accounts (i.e. RRSPs/TFSAs), and recommend where contributions should be maximized in a given year.  They could help you design a plan for withdrawing (deregistering) money from your RRSPs that could minimize the taxes you pay over time. There may also be opportunities to lower your tax burden by finding future tax liabilities now (ex. the deemed sale of vacation property on death) and implementing strategies to address them.  These are just a few of many possible examples.

Why do you need an investment plan to tax plan?  An investment plan is a personalized document that is unique to you.  It shows you your assets and liabilities while also looking at your current and future income and expenses.  It also considers future goals and wishes, for yourself, your children or grandchildren, your business if you’re a business owner, and perhaps any institutions that are important to you (i.e. charity or church).  With a little up front planning, addressing your current and future wishes, including those wishes that will take place upon your death, could save you a significant amount of money in taxes. From this foundation, simple tax planning opportunities can be addressed immediately and more advanced or complex issues can be worked toward with the professionals at LGK Wealth Management, with more experienced tax professionals being consulted when needed.

Ultimately, our goal is to help you achieve your investment objectives.  Our belief is that one of the most important ways that those objectives are best achieved is by keeping as much of your money as possible from being paid in taxes.  Next month, our investment planning article will address the final topic, one that typically has a pretty important tax element as well, Estate Planning.


1 65% of Canadians are saving for retirement, census shows.  CBC News, posted September 13, 2017. (http://www.cbc.ca/news/business/census-canadian-saving-1.4287219)


In the meantime, should you have any questions about today’s topic or previous ones, we urge you to call us at 780 426 2400 or e-mail us at administration@lgkwealth.ca.  


Gary M. Koss
Senior Mutual Fund Advisor
Manulife Securities Investment Services Inc.

Call 1-780-426-2400