No one wants to pay more taxes than they have to — and there are ways to significantly reduce the taxes you pay on your investments as they grow.

The easiest and most effective move is to make full use of TFSAs and RRSPs — both are essentially tax shelters that reduce the taxes you have to pay on investment growth, says Jason Heath, a certified financial planner.


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RRSP contributions typically make sense if your income is moderate to high, as you don’t pay taxes on the money contributed, and although you do have to pay taxes on RRSP withdrawals, your tax bracket will likely be lower once you retire. You probably want to start with a TFSA if your income is low.

Distributions and how they are taxed

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If you’ve maxed out both tax shelters and you have investments outside of your RRSP and TFSA, you can reduce your overall taxes by keeping fixed income investments like bonds and GICs inside the shelters and leaving your stocks and other equity investments in regular accounts.

That’s because you generally have to pay more tax on gains for bonds and GICs than you do with equities, says Heath.

“Fixed income investments paying interest income are taxed at the highest rate in your nonregistered account. So, if you happen to have money in nonregistered, TFSA, and RRSP accounts, you may want to hold fixed-income investments like bonds in your RRSP,” said Heath.

“There are other considerations, like the size of the accounts and when you need to take withdrawals from the accounts, but tax planning can boost your overall portfolio returns,” said Heath.

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Kendra Sivertson
Certified Financial Planner
Perspektiv Financial
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