3 Essential Tax Tips for Canadian Investors

If you’re looking for tax tips that go beyond the basics, these are three to consider that will help you keep your cash in hand.

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Tax season is upon us, and Canadians need to get themselves in gear and start looking for some tips on how to keep their taxes as low as possible. With that in mind, here are three lesser-known tax tips for Canadian investors.

Tax-loss harvesting

Many Canadians might already be aware of the concept of capital gains and the taxes that come with it. However, fewer may be aware of tax-loss harvesting. This is the strategy that involves selling investments that have experienced a capital loss in order to offset capital gains realized in other areas of your portfolio.

In Canada, capital losses can be used to offset capital gains in the current year. However, they can also be carried back up to three years! Alternatively, they can be used to carry forward indefinitely to offset capital gains in the future.

However, make sure to follow the superficial loss rule. This disallows the claim of a capital loss if the same security is then repurchased within 30 days before or after the sale. Altogether though, with so many losses in the markets, this is a huge benefit for many Canadian investors this tax season.

Consider corporate class funds

Another tax tip would be to consider corporate class mutual funds. These are structured as a single corporation with multiple investment funds or classes. These allow investors to switch between different funds within the same corporate structure without triggering an immediate taxable gain or loss.

Instead, the gain or loss would be deferred until the investor sells their shares in the corporate class fund. This provides tax efficiency, especially if you’re in a higher tax bracket. The result is investors can defer their capital gains, and reduce their annual tax liability in the process.

Use investment accounts strategically

There are some strong tax-advantaged savings accounts investors can use as well this tax season. While many investors contribute to the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plans (RRSP), many may not be optimizing their use.

For instance, if you hold investments with high growth potential in your TFSA, this can protect your future gains from taxation. Furthermore, the RRSP can be deducted from your taxable income, and this can also reduce your current tax liability. Just make sure you’re staying within the contribution limit for both of these accounts.

Where to invest

Now that you’re saving on taxes, it can be a strong option to start investing with the funds you receive back from the government. And in this case, I would consider perhaps iShares Core Growth ETF Portfolio (TSX:XGRO).

This exchange-traded fund (ETF) offers a 2.17% dividend yield, with holdings balanced with 18% in bonds, and 81% in equities. These equities are in a diverse range of sectors across a variety of other iShares products.

Shares are up 15% in the last year, providing strong growth—and even more long term, with shares up 58% in the last decade alone. So, consider this for further growth that will protect your assets from taxation!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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