Tips for creating a ‘smart-tax’ portfolio
When dealing with taxes, you need to make sure you are investing in the right way to avoid a heavy tax burden in the long run. In order to create a tax-smart portfolio, it’s important to know what your money manager is making you over what the market is providing (known as your alpha) so that you end up with profit after taxes. Being aware of the tax implicaitons of your investment portfolios, especially what is in it’s make-up as well as turnover, can led to a considerable difference in your returns. Investing wisely will help you keep all your returns at tax time.
- The majority of Canadians now face tax in provinces where the highest marginal tax rates are in excess of 50 percent.
- A key tax factor is portfolio turnover, and ensuring the alpha added by your money manager is high enough to make up for any taxes created when securities are sold.
- Consider your investment mix becaue each type of income is taxed differently and will result in very different portfolio values over time when investing outside of registered plans.
“The good news is that you can take steps to reduce your tax burden without having to cheat.”