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Canadian tax forms with calculator and pen isolated on white Credit: John Tomaselli / iStockphoto
Canadian tax forms with calculator and pen isolated on white Credit: John Tomaselli / iStockphoto

Learn More: Beginner Investor

How smart investing can save taxes Add to ...

This is the final part of a six-part course on basic investing that we publish every Tuesday. An advanced lesson plan appears every Thursday.

As Benjamin Franklin famously said: "In this world nothing can be said to be certain, except death and taxes."

Well, at least he got the first part right. Death may be inevitable, but if you live in Canada and have money to invest, there's plenty you can do to minimize or eliminate taxes. That's a good thing, because taxes are one of your biggest enemies as an investor.

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Most people are familiar with registered retirement savings plans (RRSPs), which are one of the most popular tax-savings vehicles in Canada. But there's a new kid in town, the tax-free savings account (TFSA), which has some unique advantages. Then there's the registered education savings plan (RESP), which is an ideal way for parents to save for their children's education.

If you aren't up on these tax-saving programs, do yourself a favour and learn more about RRSPs, TFSAs and RESPs by reading the background material -- you can also find it at the bottom of this article page under the heading Investor Education. And while you're there, be sure to check out the "case studies." They cover a wide variety of investing topics, including RRSPs, TFSAs and RESPs.

I'm a big believer in taking full advantage of these programs. When your government goes out of its way to save you money - in the case of RESPs, it actually gives you money - you would be a fool to turn it down. Using these programs effectively, however, takes some planning.



More about RESPs:

  • Related contentBalancing RESPs, RRSPs and TFSAs
  • Having kids? Pull out the wallet and get set to invest
  • Put a few RESP dollars under the tree
  • Related contentSaving for junior's higher education?
  • Related contentWhy RESPs are essential
  • Baby goes to university for $137,013


Which investments should you keep inside your RRSP? Which ones should you keep outside? Are you better off contributing to an RRSP or paying down your mortgage? What's involved in converting an RRSP to a registered retirement income fund (RRIF)?

You can find answers to these and other questions at TaxTips.ca. The site is a paradise for tax nerds, and it has plenty of useful information for regular folks, too.

For some higher learning on TFSAs, read what Rob Carrick has to say.

Investor Education: TFSAs

  • Related contentTFSA or RRSP: How to choose?
  • Related contentCareful, that TFSA can be such a tease
  • Note to Flaherty: TFSAs are good but they can be so much better
  • Using a TFSA can help get retirement plans on track
  • The right way to use a Tax Free Savings Account
  • Learning from TFSA's rule book


Another way investors can cut their tax bill is to invest in dividend-paying stocks. Thanks to the dividend tax credit (DTC), dividends are taxed at much lower rates than interest income.

Check out my column that explains the ins and outs of the tax credit here and read about some of the drawbacks here.

Death will come whether we like it or not, but as an investor, you can take steps to minimize your taxes. We've given you some tools. Now get going.

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Learn more about investing from John Heinzl The 2010 Investor Education series for beginner investors:

The 2010 Investor Education series for advanced investors:

Gail Bebee's weekly mentoring for our investor education contest winner:



 

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