Building wealth by investing is an essential part of any financial plan but the huge range of available options can be confusing and overwhelming. That's why we strive to explain our recommendations in plain language but while keeping you fully informed.
We offer a wide range of investment products that can be held in a number of different accounts.
Making use of tax-sheltered accounts can significantly increase your long-term returns.
RRSP (Registered Retirement Savings Plan):
Save now, tax-free and get a tax deduction. Pay taxes later at a lower tax bracket.
An RRSP is the most effective retirement savings and investing tool available to most Canadians. It lets the money you invest grow unaffected by taxes until it is withdrawn. That means your money has the potential to grow faster and accumulate more returns. What’s more, you’ll get a tax deduction for every dollar you put into an RRSP, reducing your annual tax bill. Here’s how it works: investments in an RRSP grow on a tax-deferred basis until money is withdrawn. The fact that your plan is “registered” with the Canada Revenue Agency allows you to benefit from this tax-deferred growth. Outside an RRSP, most investments are taxed. Interest earned is fully taxable, half of capital gains are taxable and dividends are taxable but eligible for the dividend tax credit. Inside an RRSP, none of these taxes apply. Because you pay no tax on investment growth while your money remains inside an RRSP, your investments compound far more quickly. At the end of the road, that makes a huge difference. Even though you’ll be taxed on amounts you withdraw from RRSP savings during retirement, your tax rate will likely be lower than during your working years, so the tax bite will be considerably smaller. And the money left in the retirement plan continues to grow sheltered from tax.
TFSA (Tax-Free Savings Account):
Save now, tax free but no tax deduction. No taxes payable later.
Tax Free Savings Accounts (TFSA) were introduced in the 2008 Federal Budget effective January 1, 2009 to help us save and invest for our future. Canadians who are 18 years of age or older may contribute up to $5,500 per year to a TFSA. Unused room carries forward. If a Canadian was 18 on January 1 2009, they have accumulated $52,000 in room in 2017. TFSAs are great because the earnings are tax-free. In Canada, only your principal residence and your TFSA are true tax free investments.
Your TFSA contribution can go to a wide array of savings or investments, such as a savings account, GICs, segregated funds, etc.
The unused contribution room can be carried forward, so if you can’t make the full $5,500 contribution one year, you can catch up in a subsequent year.
Withdrawals are tax free and the earnings are too.
Unlike RRSPs, if you make a withdrawal from your TFSA one year, the space resets in the next contribution year. You can therefore put the amount withdrawn back into
the plan in a subsequent year.
RESP (Registered Education Savings Plan):
Tax savings that benefit the whole family
RESPs permit savings to grow tax-free until the beneficiary is ready to go to college, university or any other eligible post-secondary educational institution. Under the family RESP plan, if your child decides not to attend higher education, the RESP can be transferred to another beneficiary such as a sibling. RESP assets can also be transferred into parental RRSPs, provided the parent has enough contribution room left.
Each child beneficiary can collect up to $500 per year from the Canada Education Savings Grant (CESG) program, to a maximum of $7,200 over the life of the RESP. That’s an automatic 20% return on your investment! The simplest way to achieve this is to set up a convenient pre-authorized contribution of about $208 a month. And the earlier you start, the more you take advantage of accumulated growth.
Lastly, further savings may be held outside of any registered plan. These plans are subject to taxation on interest, dividends, and capital gains at differing rates, so proper strategies must be used to minimize the effect of taxation on your investment returns.