How to be tax efficient with your non-registered investments

Fixed income investments, such as bonds, mortgages and bond mutual funds and Guaranteed Investment Certificates (GICs), generate interest. The entire amount of interest income from investments like these is taxed at your marginal rate — unless you hold interest-bearing investments inside your RRSP where they can grow in a tax-deferred environment.

A very effective non-registered investment strategy for deferring capital gains taxes is the mutual fund structure known as a tax-advantaged fund. Usually, mutual funds trigger tax consequences any time you switch from one non-registered fund to another, but funds within a tax-advantaged fund structure are treated as a single entity for tax purposes so you can move assets freely among funds within the same structure without triggering any capital gains tax at that time. This allows you to rebalance your portfolio or realize a gain on a fund and reinvest it in another fund within the same structure while deferring taxation on capital gains.

Tax breaks are important – but it is equally vital that your portfolio includes an appropriate balance of registered and non-registered investments within an asset mix designed to suit your financial goals, investment timeframe and tolerance for risk. A financial advisor can work with you to develop a tax-efficient portfolio that fits your evolving needs.

This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your financial advisor.