Are you tired of paying through the roof in taxes? Let us show you some simple investment strategies which can lower your taxes and put more of your money back in your pocket.
Defer Your Taxes
One way to lower your taxes is to defer them into future years. The reason to do this is it’s smarter to pay taxes when you’re in a lower tax bracket during your retirement years. Deferring also puts the control of when you pay the tax in your hands and not the CRA’s. One way to take advantage of tax deferrals is by investing in your Registered Retirement Savings Plan (RRSP). With an RRSP, you can contribute up to the allowable yearly amount and grow your money tax-free — you’ll only have to pay the taxes when you pull out the money, thereby paying those taxes at a presumably lower tax rate.
Make a Spousal Loan
Another investment strategy designed to lower your taxes is to make a loan to your spouse (who is in a lower tax bracket) to buy investments. The loan has to be issued at the CRA’s prescribed interest rate, but then it can be used to invest in stocks, real estate, etc. You’ll still have to claim it as income and pay taxes on it, but it will be taxed at a much lower rate. Plus, you can also deduct the interest, so it’s a great way to save on your taxes.
Divide Your Taxes
Income splitting can help you spread your income among more than one taxpayer. Although the government has historically been tough on income splitting, making it illicit for couples to pool their income, there are still strategies available to take advantage of dividing your taxes. For example, you can legally participate in pension splitting, invest in your spouse’s lower-income RRSP(s), or engage in CPP retirement savings splitting without being penalized by the CRA. You can also reduce your taxes by creating a corporation or partnership to earn business income or to pay family members through the business.
Buy Stocks with no Income
If you purchase stocks that do not pay a dividend, you won’t have to report investment income each year. The idea here is to hold the stock as long as possible, because once you sell it, you’ll have to pay capital gains on the stock. Luckily, you can defer these too. For instance, you can defer capital gains tax by owning a small business. Anyone who owns a qualified small business is entitled to an $800,000 capital gains exemption upon the sale of the shares. This amount can be claimed by any family member involved as long as they’ve held shares in the company for at least two years.
Invest Where it won’t be Taxed
When you’ve met your RRSP and TFSA contribution limits for the year, you’ll have to find another place to tax shelter your money. Fortunately, there are a number of ways you can park your money to experience income growth without being taxed yearly. One of the easiest ways to avoid taxes is to buy a primary residence. As the value of your home appreciates, the money will grow over time, tax-free. This is just one of the many ways of investing without being taxed.
To find out about more specific investment strategies which can lower your taxes, talk to one of our expert advisors at The Beacon Group of Assante Financial Management Ltd. today. We’ll show you exactly how you can save thousands of dollars each year on your taxes through strategic planning and tax optimization.