One of the biggest challenges investors face in the Canadian investment market is reducing the amount of taxes paid on their investments. Obviously, there are a few investments that have built in tax shelters such as your Registered Retirement Savings Plan (RRSP) account, which reduces your taxable income in the year of your contribution, but has tax implications in the years of your withdrawals, or your Tax Free Savings Account (TFSA) which allows you to invest and pay no additional tax on any income earned within this account.
While the TFSA and RRSP accounts each have their own place in the investment world, they are both registered investment accounts. What if you want to save in a non-registered account? A basic non-registered account will have tax liability at your marginal tax rate based on any interest, dividends and capital gains you earn within the account in the given tax year. How do you avoid this? The solution is called a Corporate Class Mutual Fund.
A Corporate Class mutual fund allows you to invest non-registered money and gives you 3 main advantages over investing within a traditional mutual fund.
• Switch – Gives you the option to switch your funds within the corporate class structure and rebalance your portfolio without triggering any capital gains or taxes.
• Defer – You are able to defer taxes within the fund until a later date, which could be years down the road.
• Convert – Any interest earned within the account is converted to be taxed as dividends or capital gains.
These funds are typically favourable to investors looking to:
• Invest outside of an RRSP plan.
• Rebalance their portfolio as needed without having any tax implications.
• Convert interest income into dividends or capital gains, reducing their taxable burdens and being more tax efficient with their investments.
• Defer paying taxes on their investments for as long as possible.
Corporate class mutual funds offer significant advantages in your non-registered account. Talk to me today to find out more.