When most people think about investing, they focus on growth, performance and long-term strategy. But there’s another important piece of the puzzle that often doesn’t get enough attention: tax-efficiency.
Taxes can quietly chip away at your investment returns over time, and while you can’t avoid them altogether, there are ways to manage them and minimize their impact. That’s why it’s essential to have open, informed conversations with your financial advisor, not just about your investment goals, but also about how to structure your portfolio from a tax-efficient investing perspective.
Here are conversation starters to help you explore whether your investments are working as hard as they could be, after tax.
Are we taking full advantage of my TFSA and RRSP?
These accounts are the cornerstone of tax-efficient investing for most Canadians, but many investors underuse or misuse them.
A conversation with your advisor can help clarify your situation:
- Am I contributing the right amount to each?
- Are we prioritizing based on my current and future tax brackets?
- It doesn't matter what you hold in your accounts: withdrawals from your RRSP are classed as income, and TFSA withdrawals are not taxed.
What type of income is my portfolio generating and how is it taxed?
Tax-efficient investing takes into account the types of income you could potentially receive from your portfolio. Different investments generate different kinds of income: this could be interest, dividends, capital gains and return of capital (ROC). Each has its own tax implications.
Ask your advisor to break down your portfolio’s income sources and how they’re taxed in your specific situation. Are there opportunities to shift toward more tax-efficient income, especially in your non-registered accounts?
Could I be deducting fees related to my investments?
Many investors don’t realize that advisory fees paid on non-registered accounts may be tax-deductible. If you’re paying fees directly (as opposed to them being embedded in a fund), you may be eligible to claim those expenses on your tax return.
You need to check with your advisor and a tax specialist: are my fees deductible? And if not, is there a more efficient way to structure them?
Should we be thinking about capital gains planning?
Capital gains are taxed only when that gain is realized (meaning when you sell the investment). This opens up opportunities for tax planning, like deferring gains to a lower-income year or strategically realizing losses to offset gains.
Bring this up with your advisor: are there gains we could defer or losses we could harvest to reduce this year’s tax bill?
Are we being mindful of government benefit clawbacks in retirement?
In retirement, certain sources of income — like RRIF withdrawals or investment earnings — can push you into a higher tax bracket or reduce your Old Age Security (OAS) and other government benefits.
Ask your advisor: are we structuring my retirement income to minimize clawbacks? Are we balancing income sources to keep taxable income in check?
Can we use income-splitting strategies?
For couples, income-splitting can be a powerful way to reduce the overall household tax burden. This could include spousal RRSPs, pension income splitting or using prescribed rate loans. All of these can be used to reduce what you pay in taxes.
Talk to your advisor about whether income-splitting is available and appropriate for your situation and how it might change as you transition into retirement.
Are my withdrawals structured in the most tax-efficient order?
A key aspect of tax-efficient investing is having an in-depth strategy for how you you’ll start drawing income from your accounts. The source of your withdrawals can have a big impact on your overall tax bill. For example, should you withdraw from your RRSP before your TFSA? What about tapping into non-registered accounts?
Have this conversation early with your advisor: what’s the optimal withdrawal strategy for my retirement goals, cash flow needs and tax situation?
Am I using investments that provide tax-efficient cash flow, like return-of-capital mutual funds?
Some investment options (Series T mutual funds) are designed to help you achieve more tax-efficient investing by delivering tax-deferred cash flow, in the form of return of capital (the original amount that you invested into the fund). Return of capital is not taxable because it’s not income or investment growth.
Once your original capital invested is fully depleted, subsequent distributions will be fully taxable. This strategy can help you generate steady and predictable income while keeping taxable income lower in the early years.
Ask your advisor: do tax-efficient cash flow options — like Series T mutuals funds — make sense for me?
Make sure your plan is tax efficient
Tax-efficient investing should be a key part of any financial plan, but it’s often overlooked. These conversation starters aren’t just about saving money on taxes this year; they’re about building a more tax-efficient portfolio and plan that works smarter over the long term.
The key is proactive, personalized advice. Everyone’s tax situation is different, and there’s no one-size-fits-all approach. But by asking the right questions and working closely with a knowledgeable advisor, you can build a more tax-efficient investing strategy and keep more of your hard-earned money growing, to help you reach your goals.
Your IG Advisor can take into account your whole financial picture. They partner with tax specialists to help ensure that your investment portfolio is optimized for tax efficiency.
Talk to your IG advisor today to discuss if your portfolio is structured in the best way possible to minimize the taxes you pay and maximize what you keep. If you don’t have an IG advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Advisor.
Commissions, fees and expenses may be associated with mutual fund investments and the use of iProfileTM Managed Asset Program. Read the prospectus and speak to an IG Advisor before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. An asset allocation service, iProfile is a managed asset program for clients with a minimum of $250,000 invested in the iProfile program. Mutual funds and investment products and services are offered through the Mutual Fund Division of IG Wealth Management Inc. (in Quebec, a firm in financial planning). And additional investment products and brokerage services are offered through the Investment Dealer, IG Wealth Management Inc. (in Quebec, a firm in financial planning), a member of the Canadian Investor Protection Fund.
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