5 Tax-Efficient Ways to Build Wealth in Canada

Structuring your finances for tax efficiency is a critical part of any financial plan. Even small adjustments can help you keep more of what you earn and grow your wealth faster.

1. Shelter your investment growth

One of the most effective ways to grow your wealth is by using registered accounts that offer valuable tax advantages. These accounts allow your investments to compound over time without being taxed right away— helping you keep more of your returns.

• In a Tax-Free Savings Account (TFSA), all growth and withdrawals are free from Canadian taxation. It’s ideal for both long-term investing and flexible access to funds.
• Registered Retirement Savings Plan (RRSP) contributions are tax-deductible, which helps lower your current tax bill. Growth is tax-deferred until withdrawal — often at a lower tax rate in retirement.
• First Home Savings Account (FHSA) is designed to help you save for your first home, by combining the benefits of both the RRSP and TFSA: contributions are tax-deductible, and qualifying withdrawals are tax-free.
• Registered Education Savings Plan (RESP) is ideal for saving for a child’s education. It allows your investments to grow tax-deferred and benefit from annual government grants—boosting your savings even further.

2. Build a tax-efficient portfolio

Not all investment income is taxed equally, so holding assets in the most advantageous accounts has a big influence on long-term wealth planning. For example, interest income and foreign dividends are taxed at your full marginal tax rate, while Canadian eligible dividends and capital gains receive preferential tax treatment.

To invest for tax efficiency, discuss with your advisor about the following:

• Consider a diversified mix of capital gains, dividends, and interest-bearing investments to optimize your after-tax returns.
• Prioritize interest-earning investments in tax-sheltered accounts, and tax-efficient investments like Canadian dividend-paying equities in non-registered accounts for better after-tax outcomes.
• You can also utilize capital losses in non-registered accounts to help offset tax on capital gains.

3. Take advantage of your principal residence

Over time, property appreciation can result in substantial tax-free gains. The principal residence exemption allows homeowners to avoid or dramatically reduce capital gains tax when they sell (or are deemed to sell) their primary residence.

4. Split income with your family

Income-splitting, which involves transferring income from a higher-income earner to a lower-income family member, can help to reduce a household’s overall tax bill.

• Common methods include spousal RRSPs, pension income splitting, prescribed rate spousal loans, gifting assets for investment in tax-advantaged accounts or paying a reasonable salary to family members for work performed in your business.
• More advanced tools like family trusts with prescribed rate loans can allocate income to beneficiaries taxed at lower rates and are useful for intergenerational wealth planning.

5. Insure Yourself

Permanent life insurance policies grow on a tax-deferred basis and can be accessed during your lifetime through withdrawals or policy loans. Life insurance death benefits are generally paid tax-free to beneficiaries, providing a good option for minimizing estate taxes and smoothing the transfer of wealth.

Professional Advice Matters

Reducing tax is one of the most effective ways to grow and protect your wealth. Your financial advisor can help you uncover tax-saving strategies tailored to your unique situation, helping to set the stage for long-term financial success.

Our Total Wealth Solutions approach helps you define and reach your financial goals at every stage of life.

Securities-related products and services are offered through Raymond James Ltd. (RJL), regulated by the Canadian Investment Regulatory Organization (CIRO) and a Member of the Canadian Investor Protection Fund. Statistics and factual data and other information are from source Raymond James Ltd. (RJL) believes to be reliable but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund. Solus Trust Company (“STC”) is an affiliate of Raymond James Ltd. and offers trust services across Canada. STC is not regulated by CIRO and is not a Member of the Canadian Investor Protection Fund.