Keep more to grow more
Author: Sound Choices
May 18, 2021
The content in the article below is meant for Canadian investors only.
One of the best ways to maximize your savings is to take advantage of tax-sheltered plans.
Tax Treatment of Non-Registered Investments
If you held an investment outside of a tax-deferred plan, you are required to report the following income on your Canadian income tax return*:
- Distributions in the form of interest, dividends or capital gains paid to you by any fund, including those reinvested
- Gains (or losses) realized when selling or redeeming units or shares of your fund
Tax Treatment of Registered Investments
On the other hand, distributions on funds held in a tax-sheltered plan – such as a Registered Retirement Savings Plan (RRSP), a Registered Retirement Income Fund (RRIF), a Registered Education Savings Plan (RESP), or a Tax Free Savings Account (TFSA) – do not need to be reported as taxable income and they are automatically reinvested.
However, you are required to report on your Canadian income tax return* when money is withdrawn from a registered plan (the exception being a TFSA – because you’re investing with after-tax dollars, the amount withdrawn is not taxable).
For example, let’s say you decide to set aside $500 a month. Maybe you want to save for a dream vacation. Or a new car. Or to renovate your kitchen.
Does it really make a difference if you put the money into a tax-sheltered plan, such as a TFSA, which can be used for any financial goal?
The chart below shows:
- the same amount of money ($500/month) being invested in the same product (a hypothetical investment with a 5% annual return)
- the only difference – Investor A chose a TFSA account, while Investor B chose a non-registered account
After one year, the amount may not seem significant but it makes a big difference over a longer time period.
To find out more about tax-sheltered plans, contact your financial advisor or visit the Registered Plans page on AGF.com.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
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