Tax-efficient investing

Author: Sound Choices

April 11, 2018


The content in the below article is meant for Canadian investors only.


What you invest in has a significant impact on the rate of growth of any investment. Likewise, investments that feature tax-exempt or tax-deferred income will grow faster. Tax efficiency also provides a hedge against inflation, particularly if it increases rates of return that can exceed inflation rates.

Here is our recommended order of investing, starting with the most tax-efficient.

Priority 1
Pre-tax capital:

  • Registered Retirement Savings Plan (RRSP), Registered Pension Plan (RPP).
  • Whole dollars are invested because the investment results in a tax deduction.
  • Taxation on compounding earnings is deferred but both principal and earnings are taxed on withdrawal.

Priority 2
Post-tax, government-enhanced:

  • Registered Education Savings Plan (RESP), Registered Disability Savings Plan (RDSP).
  • These investments are made with tax-paid dollars (no deduction available when contributing).
  • Earnings grow on a tax-deferred basis in these plans, but the priority is increased because the government enhances the deposit with matching grants and bonds.

Priority 3
Post-tax, tax-exempt

  • Tax Free Savings Account (TFSA), insurance, principal residence equity.
  • Earnings grow without taxation, and are not taxed on disposition, but these investments are made with tax-paid dollars.
  • Using tax savings from an RRSP is a good way for you to fund this category.

Priority 4
Post-tax, tax-preferred

  • Tax-paid capital is invested in non-registered accounts and may generate tax-preferred income:
    • Dividends and capital gains income is taxed annually (interest, dividends, rents, royalties)
    • Increases in value as assets are subject to tax on disposition, resulting in a capital gain or loss.

Use capital as a tool

The following checklist can help to build principles for investing and prioritize investment choices:

  • Qualifying income? If you have available RRSP room, maximize RRSP contributions first to create tax savings, tax-deferred income and new capital.
  • Leveraged tax refund? Leverage any additional tax refund created to top up unused carry-forward room in your RRSP/RPP.
  • Government incentives? Take advantage of Canada Education Savings Grants and Bonds or Canada Disability Savings Grants and Bonds to save for education of children or grandchildren or pensions for the disabled.
  • Savings or parking money? Open a Tax-free Savings Account (TFSA) if you’re at least age 18.
  • TFSA or RRSP: Which first? Read this article to find out.


Talk to your financial advisor to determine which investments can help you build a tax-efficient investment plan.

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The information contained in this brochure is based on material believed to be reliable and is provided as a general source of information, based on information available as of April 9, 2018 and should not be considered any personal investment or tax advice. The information provided has been created and vetted by The Knowledge Bureau Inc. Every effort has been made to ensure accuracy at the time of publication, however AGF Management Ltd. and its affiliates cannot guarantee 100% accuracy of this information, and is not responsible for the development and creation of this material. It is important for investors to consult with their financial and tax advisors before making any investment or tax planning decisions. 
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