Part 1 – Turning “Tax Pain” into Personal Gain in 2021 and Beyond

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Can you feel the excitement in the air? Unless you are a tax accountant, expect a nice tax refund, or enjoy paying your share, you may not be that excited about income taxes. 

In this 5-part series, we will discuss how to better navigate tax season to maximize your tax efficiency, how to think about registered accounts, and help you to make more informed decisions in your own tax planning. 

We joke we like tax season as we prepare for one of our busier times of the year; in all seriousness, it is a great time for us to add value for clients. While our wish is for a simpler tax system and easier filing, we like to proactively help clients navigate our current system and improve their wealth management plan, financial resiliency, and tax efficiency in the process.

Our work begins in January with financial planning and portfolio reviews, positioning clients for the year ahead. We believe the first quarter of the year is a good time to discuss plans and expected money flows for the upcoming year, make and review financial plans and investments, and help clients improve their income tax literacy.  

In mid-February, we begin receiving calls from clients wanting to check-in on their tax packages and ask questions, often about Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs). While saving is great no matter how you do it, we find conventional wisdom and commonly held misconceptions about registered accounts often stops savers from maximizing the benefits available to them. 

This discussion is more nuanced than some articles suggest and there is no one-size-fits-all answer or best outcome. This is not surprising since people have different income tax liabilities, and everyone has their own unique circumstances, goals, and objectives. This gives rise to a range of outcomes for clients to select from and we like having options when we can. 

How to Think about and Approach Tax Season?

For some, the primary objective of tax season is to reduce their income tax bill and contributing the maximum to their RRSP each year is the appropriate decision. While it’s easy and natural for people to think short-term, seeking simplicity and discounting their future tax liabilities, we believe this could prove costly in the long-term. 

For us, the goal of tax planning is to maximize tax efficiency, and this does not necessarily mean minimizing income tax paid this year, or in any one year. To us, tax efficiency is simply defined as minimizing our lifetime tax bill – the lifetime sum of taxes paid each year – and requires an understanding of wealth management, the unique circumstances of the person, and a long-term perspective.

In our 5-part ‘Turning Tax Pain into Personal Gain’ series, we hope to clear up some misunderstandings we hear about tax efficiency and registered accounts, and touch on some key points to improve your general understanding to help you make informed decisions and ask the right questions in your own tax planning discussions.  

Disclaimer

This information has been prepared by Dave Charlebois, Investment Advisor, and Stephen Gaskin, Associate Investment Advisor for Lighthouse Wealth Management, a division of iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. 

The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

 

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