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Investing in “Tax-Smart” Ways

March 24, 2023

INVESTING IN “TAX-SMART” WAYS HAVE YOU MAXIMIZED TAX-ADVANTAGED ACCOUNTS?

We aren’t doing a good job fully maximizing TFSA contributions — even the wealthiest Canadians appear to be overlooking the opportunity! The latest reports suggest that only nine percent of TFSA holders have maximized available contribution room.1 For those earning $250,000 or more, only about 30 percent of holders had fully contributed, with an average unused contribution room of around $22,000. During tax season, we often try our best to reduce our taxes as much as possible, so it’s hard to understand why more Canadians don’t take full advantage of the TFSA. As of the start of 2023, eligible Canadians can contribute $88,000 (for those yet to open a TFSA). Are you taking full advantage of the TFSA? Beyond the significant benefit of growing funds on a tax-free basis, here are some additional reasons why the TFSA is an important planning tool: Transferring Wealth While Alive — The TFSA may help to gradually transfer wealth to beneficiaries while you are alive. Gifted funds can be used by adult children to contribute to their own TFSA, which can grow over time. Transferring wealth while alive can simplify an estate and potentially minimize taxes. However, keep in mind that once assets have been gifted, you will have no control over the funds. Approaching Retirement: RRSP/RRIF Meltdown Strategy — There may be benefit in gradually drawing down RRSP funds as you approach retirement, or RRIF funds. One significant reason is if you are in a lower tax bracket than you will be in future years. A strategy may be to use RRSP/RRIF withdrawals to fund TFSA contributions. As the TFSA grows, this tax-free income can augment or replace RRIF withdrawals later. At death, these funds can pass entirely to heirs; residual RRSP/RRIF income would potentially be subject to the highest marginal tax rates.

Funding Retirement — The TFSA can help optimize retirement income and cash-flow streams. TFSA withdrawals aren’t considered taxable income so they won’t affect income-tested benefits such as Old Age Security. TFSA withdrawals can also help with tax planning. For example, if you need funds but generating RRIF income will put you in a higher marginal tax bracket, you may be able to minimize tax by withdrawing only the required RRIF amount and using TFSA withdrawals to supplement income. On the other hand, if your marginal tax rate is lower than you expect in the future (or at death), funds in excess of the RRIF minimum requirement may be withdrawn and put into a TFSA where they can continue to grow. This may reduce your overall lifetime tax bill. The TFSA can also supplement cash flow if a retiree chooses to defer Canada Pension Plan benefits. Your Estate Plan — The TFSA can play a valuable role in your estate plan. At death, an individual is deemed to have sold their capital property, generally resulting in taxes owing on capital gains. However, the TFSA is an exception to this rule and gains made on TFSA assets generally will not be taxed. Consider that even a lump sum investment today of $88,000 would result in over $250,000 in 20 years at a compounded rate of 5.5 percent — not an insignificant bequest by any measure! The bottom line? Ensure you have fully contributed to your TFSA!

The information contained herein has been provided for information purposes only. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information has been provided by J. Hirasawa & Associates and is drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document. Wellington-Altus Private Wealth Inc. (WAPW) and the authors do not guarantee the accuracy or completeness of the information contained herein, nor does WAPW, nor the authors, assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. ©️ 2023, Wellington-Altus Private Wealth Inc. ALL RIGHTS RESERVED. NO USE OR REPRODUCTION WITHOUT PERMISSION

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The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.