Canadian Investment Management Services

Knowledge Centre

This area provides you with a number of time tested strategies to improve your financial situation.

If you have any questions, please feel free to contact one of our financial advisors.

FOUR PILLARS OF TAX-EFFICIENT INVESTING

Tax-efficient growth: This is minimizing taxable distributions to facilitate compound growth.
Tax-efficient switching: This is making strategic or tactical shifts in a portfolio's allocation without triggering a taxable event.
Tax-efficient cash flow: This is generating a desired level of cash flow while mitigating current tax.
Tax-efficient estate planning: This is planning for spousal, intergenerational and charitable transfers of wealth in a tax-efficient manner.

USING A CASH WEDGE TO MANAGE YOUR RETIREMENT INCOME

A portion of your retirement income, usually 1 year's worth, is allocated to a conservative, highly accessible investment such as a money market fund. This portion of your portfolio is called he Cash Wedge. This is where you draw your retirement income from. The 2nd & 3rd year's income is allocated to a short-term investment, such as a 1 or 2 year GIC, bond or an investment savings account. On maturity, any profit from these investments are used to replenish the Cash Wedge & provide guaranteed income for years 2 & 3 respectively. The rest of your savings is left to grow with time in a diversified portfolio of mutual funds that meet your personal financial needs. Eventually, any profits are moved from the invested portfolio into a cash position to create income for year 4 & future years.

BORROWING TO INVEST IN SEGREGATED FUNDS

To be deductible, the borrowed monies must be directly invested in segregated funds and the segregated fund policy may be assigned during the term of the loan as security. Since the interest expense becomes deductible as an interest carrying charge; a policyholder is effectively taxed on the
net (of interest expense) yield.

DIFFERENCES IN TAXATION OF INDEX-LINKED GICS VS. SEGREGATED FUNDS

Segregated funds offer the potential to access a wider range of tax-preferred investment income (i.e. dividend and capital gains). Equity-linked GICs offer access only to interest income which is taxed at full tax rates. The effective tax rate paid on a segregated fund’s investment income is in most cases less than would be paid on income from an index-linked GIC.
Segregated funds represent a more tax efficient method of meeting capital preservation along with
offering higher yielding potential investments than an equity-linked GIC.

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