When you are ready to start withdrawing money from your non-registered account to supplement your income; you will need to consider the tax implications of the deposits you receive. By combining corporate class investment funds with tax-smart withdrawals you can minimize your overall tax burden.

How it works

• Using T-Class investment funds, you receive cash flow from your original capital (ROC) invested, instead of interest or dividend distributions. This amount is not taxable, because you already paid tax on the money before you invested it.

• The return of capital will reduce the adjusted cost base (ACB) of the fund shares held. Once all your capital has been returned, the subsequent cash flows will be treated as capital gains; capital gains are taxed at a lower rate than other sources of investment income.

• At a withdrawal rate of 5% it will take 20 years withdraw your capital; all the while the interest income and dividends are reinvested to be withdrawn in the future.

• Investors will receive tax-efficient monthly cash flow without having to sell investments, meanwhile deferring capital gains.

Who would use this strategy?

Retirees that require additional income from their non-registered investments; funds received though inheritance or from the sale of a property. This strategy provides tax-efficiency and avoids the OAS claw back; in addition, it helps preserve wealth over the long term.

Flexibility of Payments

• Receive tax-efficient monthly payments that can be customized up to 8% of capital without triggering a capital gain.

• Increase or decrease your payments as needed. You can withdraw more than the 8% however the additional amount may be subject to tax. 

• If you don’t require all the payments, you can reinvest the difference shifting your asset allocation over time without triggering capital gains.

This is just one income strategy available to us during our golden years. If you want to learn more about it, please don’t hesitate to reach out.

Have a great weekend,

Tracey

Source; https://mybook.fidelity.ca/aiWeb/login.entry?url=https://www.fidelity.ca/en/investments/solutions-portfolios/tax-smart-solutions/

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Products or services related to investments, investment recommendations, financial planning, retirement planning, and investment reviews are provided through our mutual fund dealer Security Financial Services and Investment Corp. 4665 Yonge Street, Suite 309, Toronto, ON M2N 0B4 t 416.964.0440