BMO Financial Group

BMO Financial Group
BMO Nesbitt Burns

BMO Nesbitt Burns

April 22, 2011 09:00 ET

REPEAT: Avoid Nasty Surprises at Tax Time-BMO Provides Tips for Investors

- Three-quarters of Canadians don't consider tax implications

- Forty per cent not confident they take advantage of all tax incentives

TORONTO, ONTARIO--(Marketwire - April 22, 2011) - As the April 30th deadline approaches to file tax returns, Canadian investors may find themselves faced with unpleasant surprises when it comes to the tax consequences of their investment decisions from the past year.

A survey by BMO Nesbitt Burns shows that more than three-quarters of Canadians do not take tax implications into consideration each time they make an investment decision. Additionally, almost 40 per cent are not confident they are taking advantage of all tax incentives available to them.

"For Canadian investors, an important step in eliminating any surprises come tax filing time is to keep personal tax implications in mind when making investment decisions," said John Waters, Vice President, Head of Tax, Estate & Trust Expertise at BMO Nesbitt Burns. "Speaking with your financial advisor about how tax rules can affect your investments is essential to understanding your options, making tax-efficient choices and saving money."

BMO Nesbitt Burns' John Waters offers the following top tax tips for investors:

  • Contribute to an RRSP – Contributions to a Registered Retirement Savings Plan (RRSP) are tax deductible and the income earned in an RRSP is not taxed until it is withdrawn. This means your savings will grow faster than if your investments were held outside of an RRSP. There are several ways to optimize use of an RRSP, including maximizing your annual contribution limit and contributing to a spousal RRSP if there is a disproportionate retirement income level between you and your partner.
  • Invest in a TFSA – The Tax-Free Savings Account (TFSA) is a tax-efficient vehicle that provides the benefits of tax-sheltered savings and tax-free compounding, allowing your savings to grow. Income and withdrawals from a TFSA are tax-free and because of its flexibility, it complements other existing registered savings plans.
  • Think about income splitting – In order to lower your family's overall tax burden, income splitting allows you to spread income among family members who are taxed at a lower rate, subject to possible attribution rules. Some valid income-splitting strategies include pension splitting between spouses or common law partners, an interest-bearing loan to family members in a lower tax bracket, or gifts to adult children or other adult family members.
  • Make your portfolio tax efficient – Because all investments are not taxed in the same manner, it's important to consider the impact of income taxes when evaluating investments for your portfolio. For example, only one-half of capital gains are taxable, whereas interest income is fully taxed at your marginal tax rate. Certain Canadian dividends also receive special tax treatment, resulting in lower effective tax rates.
  • Donate appreciated securities – One of the most tax-efficient ways to contribute to a charity is through the donation of publicly-traded securities instead of cash. When you make a qualifying donation of publicly-traded securities, the capital gains tax that usually applies to the sale of a security can be eliminated. However, investors will also receive a tax receipt for the fair market value of the securities at the time of the donation.

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