Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Your full OAS benefits will have to be repaid once your income is $114,640.

Andrei Tselichtchev/Getty Images/iStockphoto

Here's a tool most people don't think of when drawing up a financial plan: taxes.

But consider this: Buy a GIC in a non-registered account and the interest will be taxed as income, the highest tax rate. Buy a stock that pays dividends and those dividends will be taxed at a much lower rate, from about 30 per cent to 40 per cent, depending on which province you live in.

That, wealth-management experts say, is just one of the powerful ways tax planning can help you earn better returns.

Story continues below advertisement

"People do acrobatics to try to make an extra 1 per cent on their investments," says Tom McCullough, the Toronto-based chairman of wealth-management firm Northwood Family Office and the co-author of Family Wealth Management: 7 Imperatives for Successful Investing in the New World Order.

But for wealthy families, especially those who own a business, there are opportunities to make much more through tax savings, he says. It's the reason that many banks and wealth-management firms have brought tax advisers on staff to advise clients.

Here are the basics you should consider if you're in this tax bracket:

How assets are taxed

There is a "substantial difference" in how assets are taxed, says Jason Safar, a specialist in high-net-worth taxation at PricewaterhouseCoopers LLP. Investment income is taxed at the highest rate – the same rate as income – followed by dividend stocks and capital gains, which are taxed at about half the rate of investment income.

Mr. McCullough cites bonds as a prime example of how tax planning can help the investor. People don't realize that by purchasing premium bonds and redeeming them for less than the purchase price, they not only have a capital loss but they also have converted the return into interest income, which is taxed at the highest rate.

Another key for investors, Mr. McCullough says, is to not only consider asset allocation – where to put your money – but also "asset location."

Story continues below advertisement

Tax rates can help determine whether to put an asset in a non-registered or registered account – the higher the rate, the more likely it should be protected in a registered account – and help decide which family member should hold the asset.

Minimizing taxes

The richer the person, the bigger the impact a small percentage difference in your tax bill can make. "If I'm making $100,000 a year, and I can save one per cent on my taxes, that's $1,000," Mr. Safar says. "How much heartache and suffering and planning am I willing to incur for that? Whereas if I'm making $10-million a year, and I can save 1 per cent of my taxes, a substantial effort becomes worthwhile."

One way that all experts cited to minimize taxes is to defer capital gains as long as possible, by holding on to investments and assets. "The longer you can defer taxation, the better off you are," Mr. Safar says.

Let's say you owe $100,000 in capital gains tax, Mr. McCullough says. Pay it now or pay it in 10 years – you still have to pay $100,000, but in 10 years, factoring in inflation, the payment will be worth a lot less. In the meantime, you can let that money work for you.

Income splitting

Story continues below advertisement

This is an important tax strategy for wealthy families, especially in entrepreneurial families, Mr. McCullough says. One person, the founder of the business, has the bulk of the money – and that person's large income is taxed at the highest marginal rate. Other members of the family don't earn as much so they are taxed at a lower rate. The idea is to split the income so some of that money is taxed at a better rate.

"When you think about income splitting, the goal is to get all of the related family members up to the top marginal tax rate," Mr. McCullough says. "At that point, it really doesn't matter where the income goes."

One way to do this, he adds, is to set up the business to be owned by a trust, with family members as beneficiaries.

Family trusts that don't involve a business can see members lend money to the trust, which also has the benefit that you can take the money back, removing any risk.

Outside of a trust, a family can choose to lend each other money. If a family has a high-income spouse and low-income one, for example, one spouse can lend money to the other at a "prescribed rate." That rate, which is set by the government, is 2 per cent this quarter – but will drop again to 1 per cent, said John Natale, assistant vice-president of tax, retirement and estate-planning services at Manulife Financial. Once you lock into a rate, Mr. Natale said, it's set for life – and you can continue to reap tax advantages by having the spouse with the lower income pay tax on the money that is lent.

Setting up a trust or corporation

Story continues below advertisement

For business owners, setting up a trust can have other benefits – including the potential for massive tax savings through capital-gains exemptions.

Say the business owner set up a trust that divided the ownership – every family member could get capital-gains exemptions of $750,0000 each, Mr. McCullough said. Mr. Safar says owners can also set up trusts where future growth is included in the trust and split among family members, also a tax saving.

Another option is to set up a corporation to hold your assets. Mr. Safar says that in Ontario, for example, someone earning more that $500,000 would have to pay close to 50 per cent tax; the highest tax rate for a corporation is just over 46 per cent. For someone who is generating a lot of money, that 3 per cent a year "could be worth setting up a corporation."

The downside, however, is that the advantages of doing so seem to fluctuate from year to year, "so to change your whole investment structure for something that would be a short-term issue doesn't make a lot of sense," Mr. Safar said.

Then there is the possibility of "dividend sprinkling," which is when, in a family corporation, dividends are paid to family members who are shareholders. Mr. Natale said that rules differ by province, but in Ontario you can give a family member up to $49,000 in dividend income, tax-free.

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies