4 steps to getting investment income without paying the CRA more taxes


Most investors like a high-income yield, but are you one of them? Do you need monthly income to pay your bills? Is this income earned in a taxable account? If you don’t need the monthly income from investments and you have taxable investment accounts, there is likely a way to lower your taxes.

Let’s start with the basic tax payable on investment income in a taxable account. In Ontario, if you are in the top tax bracket (income of more than $235,675), your marginal tax rate will be the following depending on type of income: Interest income: 53.53 per cent; non-Canadian dividends: 53.53 per cent: ineligible Canadian dividends: 47.74 per cent; eligible Canadian dividends: 39.34 per cent; capital gains: 26.77 per cent; and return of capital: zero per cent.

For greater clarification on a few items, depending on the income of the corporation, many private-company dividends could fall into either eligible or ineligible. For return of capital, it is zero per cent today, but it essentially serves as a deferred capital gain.
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The order of the list stays largely the same regardless of your income, except at lower income levels when the eligible Canadian dividend comes in at a lower tax rate than capital gains.

In general, earning steady income from investments makes sense even if we’re talking about lowering investment income in taxable accounts. A study of the S&P 500 going back 80 years found dividends made up between 25 per cent and 75 per cent of total returns depending on the decade. As a result, I am a fan of dividends, but how do you balance this with a lower tax bill?

With this tax knowledge as background, here is a four-step process to balance a desire for income with a lower tax bill.

Allocate appropriately among accounts

Tax-sheltered accounts such as the registered retirement savings plan (RRSP), registered retirement income fund (RRIF), tax-free savings account (TFSA) and registered education savings plan (RESP) are all good places for income investments that may not be taxed. Interest income and United States dividend income (other than in the TFSA) are ideal for these accounts. Even high-dividend investments might be a better fit here.
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If you don’t have any taxable accounts (non-registered or corporate), then being strategic about where investments sit is generally not very relevant.

If you do have taxable accounts, it is important to try to allocate the most tax-efficient investments to the accounts that will owe tax. This might mean holding investments in a non-registered or corporate account that generate no income, return of capital or eligible Canadian dividends.

Do you really need monthly or quarterly income from investments?

Are you drawing funds to cover expenses? If so, having steady investment income is likely of value. If not, there isn’t any cash-flow need to earn more investment income. You might even prefer holding stocks with no dividend or zero-coupon bonds.
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Even if you require a monthly cash flow, keep in mind you can still sell an investment to raise this cash. From a tax perspective, if it is in a taxable account, this will generate capital gains (or losses), and each dollar will result in a lower tax rate than interest income.

Find more tax-efficient investments

Alphabet Inc., Constellation Software Inc. and many other stocks don’t pay any dividend at all. These types of stocks tend to be growth companies, and lean towards technology, so there are risks, but they will generate no income for tax purposes until you sell them.

Real estate investment trusts (REITS) with high return of capital can provide you with cash flow, but still no tax bill in a current year. Public REITs can have high income, but a sizable return-of-capital component. For example, Slate Grocery REIT has a current yield of 7.4 per cent. In 2021, 58 per cent of its income was return of capital and another 12 per cent was capital gains. There are also many private REIT investments where all income is return of capital.

Consider a home equity line of credit

This strategy is currently out of favour because interest rates are high, but it is often a lower-cost source of cash flow if you would otherwise need to draw funds out of your RRSP, RRIF or corporate account.

Given that it could create a tax bill in the 40-to-50-per-cent range, it might be more tax efficient to get cash with a borrowing cost in the single digits. Of course, low single digits would be better.

This strategy makes the most sense when your funds would otherwise not be taxed for many years. It can be less valuable if you are simply deferring the tax on the income for a year or two.

It can also make sense in some cases for retirees who would otherwise lose some or all their Old Age Security benefits because their taxable income is too high.

Like most things in life, balance and nuance can be important. They say you shouldn’t let the tax tail wag the investing dog. That said, paying meaningfully higher taxes than is necessary should at least get you to pay attention to that wagging tail.

Reproduced from the National Post newspaper article 14th February 2023.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP®, CIM®
President and CEO
(416) 733-3292 x 221

Countdown to Year-end – Have you put your tax planning in place?


With less than a month to go before the end of the year, it is time to give some thought to how you are going to put your affairs in order to minimize your taxes next April. Below I have provided several points which you should contemplate for your own tax situation. Some of these are methods you should consider each year and some are very specific to this year, as the Federal Government proposed some significant changes to the Income Tax Act regarding corporate tax planning.

Capital gains/losses

The end of the year is a good time to review your portfolio. If there are stocks you are holding at a loss, you are better off to realize that loss before the end of 2017. In doing so, you will be able to use those losses to offset any capital gains you may have. If you do not have any capital gains in the current year, you can carry back your capital losses up to three years or forward indefinitely.

Age 71 RRSP Over-contribution

In the year in which you turn 71, you must convert your RRSP to a RRIF by December 31. Once you are in the year you turn 72, you may no longer make personal RRSP contributions; however, spousal RRSP contributions are still permitted if you spouse is under age 72. If you have earned income in your age 71 year, you can make a RRSP contribution in December. Though you will be over-contributed for one month, as you will have new contribution room on January 1, and have a penalty tax on it, the tax savings from the deduction could far outweigh the penalty.

Charitable Donations

December 31 is the final day to make a charitable contribution and receive the tax credit for your 2017 tax filing next April. With donations, the amount you contribute and the amount you earn have an impact on the credit you will receive. The first $200 attracts credits at the lowest marginal tax rates, but those above $200 can attract credits at or near the top bracket. In Ontario, for example, the first $200 will attract a credit of 22.89%, income below $220,000 a credit of 46.41% and above $220,000 50.41%.

First-Time Donor’s Super Tax Credit (FDSC)

This is the final year for the FDSC. If you have not claimed the donation tax credit in the past five years you can claim the FDSC on the first $1,000 of donations. This is an additional 25% of federal tax credit across the board making the federal tax credit 40% on the first $200 and 54% on the next $800 of donations.

Donation of Capital Property

Though gifts of capital property are not eligible for the FDSC, they are an effective way to donate when compared to cash. Consider a qualified investment such as a publically traded stock. You can donate it at its fair market value (FMV) and receive a tax credit equal to that FMV. The additional benefit comes into effect when calculating the capital gain due on the disposition of that security. The capital gain is not taxable. As these donations often take significantly longer than cash, you should consider proceeding as soon as possible to avoid missing the December 31 deadline.

Income Sprinkling

Effective at the beginning of 2018, the “kiddie tax” will be expanded to include all non-arm’s length dividend recipients from a private corporation. If there are not reasonable contributions to the business for which the dividends are compensation, they will be taxed at the highest marginal tax rate. Thus, if you are able to, this year would be the time to pay out additional dividends to take advantage of the income splitting opportunity this strategy affords. In addition, consider a share reorganization so that contributing family members have different classes than non-contributing.

Passive Investment Income

As the rate of tax on income can be much lower than if taxed personally, there is the potential for an increased rate of savings inside the corporation. This can compound over years providing in the estimation of the government an unfair advantage. The initial proposal would remove the refundable tax on investment income, making the rate of taxation in excess of 70% in certain situations.

Since that point, the government has relaxed its point of view to allow for $50,000 of investment income to continue under the previous rules. This would be equivalent to $1,000,000 at a 5% rate of return. They now feel that this should limit its impact to only the top 3% of corporations.

The tax landscape just grew increasingly complex with these recent tax changes. Unless you are an expert yourself, navigating this new environment should be done so with an experienced hand at the helm. With less than a month to go, do not leave your planning to chance. Your pocketbook will thank you next spring.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
(416) 733-3292 x230

Seven ETFs to counter a Canadian portfolio bias (from the Globe and Mail)


Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Financial was interviewed by Joel Schlesinger of the Globe and Mail on how Canadian investors can use ETFs to reduce specific Canadian market risks in their portfolios. (Article printed on September 26, 2017).

In the investing world, you can have too much of a good thing. This especially applies to many Canadian investors, who often have too much home cooking in their portfolios for their own financial well being.

“Typically, Canadian equities make up two-thirds or more of investors’ equity investments and, in some cases, all of them,” says Lorne Zeiler, wealth advisor with TriDelta Investment Counsel in Toronto. He often sees this problem with the portfolios of new clients.

According to a 2015 study from Vanguard, Canadian investors have on average 60 per cent of their equity portfolios invested in Canada.

That likely means they are overconcentrated in just a handful of sectors, says Paul Taylor, chief investment officer at BMO Global Asset Management. “The reality is we here in Canada are a trees, rocks and banks-based economy and market.”

About two-thirds of the Canadian equity market, for example, is made up of companies involved in the energy, mining and financial sectors, meaning many investors probably have too much exposure to them.

That isn’t to say Canadian exposure hasn’t served investors well. The TSX Composite Index doubled in value from 1999 to 2015, for example.

But the home country bias has hurt more recently, Mr. Zeiler says. Consider in 2015, “when energy prices dropped substantially, energy stocks fell roughly 20 per cent, but the TSX as a whole was also down over 10 per cent.” Given oil’s uncertain future, this Canadian bias now appears less beneficial by the day.

What’s more is that by sticking mostly to Canada, we are missing out on a whole world of investment – given Canada’s stock market makes up only about 3 to 4 per cent of the global equity marketplace, Mr. Taylor says.

That may leave some investors asking how they can create a truly diversified portfolio.

One strategy they shouldn’t pursue is radically altering their allocation to reflect Canada’s actual share of the global markets, says portfolio manager Michael Job with Leith Wheeler Investment Counsel in Vancouver.

“I think that’s unreasonable, because it assumes people are completely agnostic to currency risk,” he says. “The reality is for most Canadians, our living expenses are predominantly in Canadian dollars.”

The more foreign content you own, the more currency risk you need to manage – and that comes at a cost, Mr. Job adds. A better option is aiming to have half the portfolio allocated to Canadian investment with the other half split between the United States and non-North American investments, he says.

Investors should first look to the U.S. market – the world’s largest – because it is the easiest to access. The United States also offers the widest variety of investments to choose from, including technology and health care – two sectors that are not well represented in Canada’s marketplace.

One way investors can find the lowest-cost, most broadly diversified access to markets beyond our borders is by using exchange-traded funds, or ETFs, Mr. Zeiler says.

“For the U.S., clients should look at ETFs that mimic the S&P 500 for broad-based exposure … or invest in specific sectors that are lacking in Canada, like technology or health care.”

Here are a few ETF picks that can help you dilute any Canadian overconcentration in your portfolio.

SPDR S&P 500 ETF: This fund tracks the performance of the S&P 500, one of the more diverse indices in the world, providing access to large companies based in the United States in a variety of sectors including tech, health care and consumer staples, most with global reach. “SPDR has one of the lowest management fees among all ETFs and provides broad exposure to the entire U.S. market,” says Mr. Zeiler.

iShares Global Healthcare Index ETF (CAD-hedged): This ETF provides diversified exposure to the health-care sector. About two-thirds of its holdings are listed in the United States, and the rest mostly consist of European listings. The “MER fee is higher at approximately 0.65 per cent, which is common with many sector- or style-focused ETFs,” Mr. Zeiler says. “For investors wanting exposure to U.S. dollars, a non-currency-hedged version of this same ETF can be purchased on the New York Stock Exchange.”

Vanguard Information Technology ETF: This New York Stock Exchange-listed fund offers low-cost access to some of the largest companies in the world, let alone the tech industry. It is a “great, single investment solution to gain exposure to the IT industry,” Mr. Zeiler says. The investment consists of more than 300 holdings, “but the top 10 make up over 50 per cent of total weight.”

PowerShares LadderRite U.S. 0-5 Year Corporate Bond Index ETF: This Canadian-listed ETF provides investors with fixed-income exposure to the U.S. corporate bond market, which is the largest in the world. Using a laddered bond strategy, it aims to reduce interest-rate risk. Mr. Zeiler notes the management expense ratio, or MER, is a reasonable 0.28 per cent, but while distribution yield exceeds 3 per cent, yield to maturity is only 2.1 per cent, “meaning many of the bonds in the portfolio are priced at a premium.”

Vanguard FTSE Emerging Markets All Cap Index ETF: This Canadian-listed ETF attempts to reflect the performance of the FTSE Emerging Markets All Cap China A Inclusion Index, providing exposure to large, mid-sized and small-cap companies based in emerging markets. Investors gain access to a diversified basket of stocks across many regions for a relatively low cost – an MER of 0.24 per cent, Mr. Zeiler says. The fund also has fairly good liquidity compared with similar offerings and has more than $600-million in assets under management.

BMO MSCI Europe High Quality Hedged to CAD Index ETF: This one offers exposure to European equities but uses a return-on-equity screen to ensure companies are of high quality while hedging back to Canadian dollars. The ETF provides investors with the opportunity to participate in the euro zone’s most successful firms spread evenly across many sectors including consumer defensive, health care and industrials, Mr. Taylor says.

iShares MSCI EAFE Index ETF (CAD-hedged): This ETF aims to track the performance of the MSCI EAFE Index, which encompasses the largest publicly traded companies in the developed markets of Europe, Australia and the Far East. Mr. Zeiler says the fund is a good way to get “broadly diversified exposure to non-North American developed markets without taking on currency risk.”

Lorne Zeiler
Contributed By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
416-733-3292 x225

Tips for lowering taxes on investments (from the Globe and Mail)


How can investors reduce taxes on investments? TriDelta Financial’s Lorne Zeiler, Portfolio Manager and Wealth Advisor was one of two wealth management professionals interviewed by Globe and Mail reporter Terry Cain to answer this very question (article printed on March 1, 2017).

It’s an old saying but it still holds true – nothing is certain but death and taxes. However when it comes to investing and saving for retirement, there is plenty Canadians can do to minimize the amount they end up paying to the tax man.

First off, it’s important to realize just how important tax considerations are when planning your portfolio, experts say.

“Taxation in a non-registered portfolio is one of the major deterrents to building wealth,” says Carol Bezaire, senior vice-president of tax, estate and strategic philanthropy at Mackenzie Financial Corp. She notes that different types of investment income attract different tax treatment, so the portfolio being built should factor this in.

Interest income attracts the highest tax – on average in Canada, for every $1 earned in interest or foreign income about 50 cents goes to the government in tax. The dividends tax rate means on average 35 cents goes to the government for every $1 paid. Capital gains at the current 50-per-cent inclusion rate means on average 25 cents in tax is levied for every $1 in capital gains. “Paying attention to tax in a portfolio allows the investor to build wealth more effectively by paying less tax,” says Ms. Bezaire.

Lorne Zeiler agrees. Mr. Zeiler is a vice-president, portfolio manager and wealth adviser at Tridelta Financial. “Taxes are very important in determining how we structure our clients’ portfolios,” he says. He notes that many of his company’s clients are high-income earners and therefore in higher tax brackets, so taxes can have a big impact on their overall portfolio growth.

Mr. Zeiler says if clients have cash accounts, corporate accounts and registered accounts, his company allocates as many income-producing securities (such as bonds, GICs, and REITs) as possible to their registered accounts first, as taxes on investment income are substantially higher than on dividends or capital gains.

As far as specific tax-sheltered vehicles go, the place to start is the best-known options: registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). Mr. Zeiler says TFSAs are an excellent source to minimize tax, as any gains or income on investments within the TFSA are tax-free. For example, a couple taxed at the highest marginal rate with $125,000 in TFSAs invested in REITs paying a 6-per-cent return would save more than $4,000 annually in taxes.

RRSPs are ideal for tax minimization, as they offer the benefit of tax deferral and tax-free compounding, since taxes are paid only when the funds are withdrawn. Mr. Zeiler notes their biggest tax advantage is typically from tax arbitrage. Investors are often getting a tax credit for contributions made when they are in higher tax brackets, but then are charged taxes on withdrawals when tax brackets are lower.

Ms. Bezaire has a number of tips for tax minimization.

First, hold high-tax investments, such as interest-bearing vehicles (particularly foreign income) in a TFSA or RRSP so the interest can compound without taxation.

Next, look for investments where most of the return is through capital gains, since these receive the lowest tax rates. These investments can include stocks, mutual funds and ETFs.

Ms. Bezaire also highlights the tax-advantageous forms of mutual funds. She notes there are mutual funds that are structured as trusts and the portfolio earnings flow out net of expenses to investors. There are also corporate class funds that flow out only dividends or capital gains, never interest or foreign dividends, so these can be helpful to many investors by providing tax-efficiency. Finally there are T-series mutual funds. Most of the distributions from these funds are classified as tax-free return of capital payments, while the bulk of an investor’s savings can continue to grow in the fund.

Mr. Zeiler notes one of the areas where investors often do not do enough tax planning is their estate, as often the estate can be subject to significant taxes that could have been minimized.

Another overlooked area is planning for contingencies in the event that one spouse passes away earlier than the other. Mr. Zeiler says his company often uses insurance as part of the strategy to reduce taxes, particularly for the estate, especially if the investor’s holdings are structured as a corporation.

Mr. Zeiler also notes that income splitting is very important for retirees. By splitting income, marginal tax rates for the higher-income spouse can be reduced significantly and it can enable both spouses to earn their full Old Age Security (OAS) payments.

Ms. Bezaire also cites the value of income splitting, including selling some income-generating investments to a lower-income spouse by way of a spousal loan, using a spousal RRSP to save for retirement, pension income-splitting for seniors, or even the higher-income spouse gifting cash to a spouse who can then invest the money in a TFSA for the future.

There are two final issues to consider.

While tax considerations can be very important, Mr. Zeiler notes taxes should never drive an investment decision, such as deciding not to sell a security due to large capital gains owing.

He also highlights a related issue for many retirees: having a large position in a few securities that have substantial gains, such as owning Canadian bank shares for 20 years or more. For those clients, his company often looks at selling the shares over a period of time so that some capital gains are realized each year at a lower marginal tax rate instead of all at once.


Lorne Zeiler
Contributed By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
416-733-3292 x225

Should you contribute to your RRSP, TFSA or pay down debt



Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Investment Counsel spoke with Catherine Murray on BNN’s Market Sense. Lorne discussed the tax benefits of RRSP contributions, at which income levels RRSP contributions are most advantageous and he also reviewed strategies for consolidating and reducing debt.

Click here to watch the full interview.

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
416-733-3292 x225

When Cashing in Your RRSP Can Increase Your After-Tax Income


Contributing as much as possible to your RRSP has typically been considered the best way to plan for retirement.  But, when you consider after-tax income, there might be times when cashing out part of your RSP can increase your after-tax cash flow, reduce future taxes and help ensure that you qualify for Old Age Security (OAS) payments.

RRSP contributions offer two main benefits: 1) Tax deferred growth: money invested in RRSPs grows tax-free until the money is drawn down, typically when converted into a RRIF – after age 71.  2) Income tax arbitrage: Since the RRSP contributions are fully tax deductible and the RRSP withdrawals are fully taxable, investors are able to significantly reduce their taxes by contributing to RRSPs in their working years when incomes and marginal tax rates are higher and then pay income tax at a lesser rate when withdrawing from an RRSP or RRIF in retirement.  For example, a 45 year old earning $110,000 a year is able to reduce her taxes by 43.4% for every dollar contributed to her RRSP, but if her income in retirement is $60,000, she will be paying tax at 31.2%, a net after-tax benefit of over $0.12 on every dollar.  But, there are opportunities where income tax arbitrage favours withdrawing funds from an RRSP.  Two examples are illustrated below.

Wealthy Widow / Widower


Linda and Frank provide a good example of the potential after-tax benefits of RRSP withdrawals for widows (and widowers).  Linda and Frank were married for 35 years.  Both had worked most of their lives, and neither was entitled to a pension other than the Canadian Pension Plan (CPP).  Both had also amassed RSPs of over $500,000 each.   Frank recently passed away and Lisa at age 66 decided to retire. 

Lisa’s income, which had been $100,000/yr., suddenly declined to about $20,000 in retirement.  Her marginal tax rate dropped from over 43% to just 20%, but her RRSP, which was now combined with her husband’s, increased to over $1,000,000.  If she chooses to begin withdrawing money from her RRSP at age 66, when her tax rate is substantially lower versus waiting until age 71 to begin her RRIF, she could save substantial after-tax dollars and significantly reduce her OAS clawback.

Assuming, modest 4% growth per year, Lisa’s RSP will be worth over $1,300,000 by the time it is converted to a RRIF and she begins her withdrawals at age 72.  Since the minimum withdrawal rate at age 72 is 7.48%, she will be required to withdraw over $95,000 per year, bringing her total income to well over $110,000 when including CPP payments and small cash investments.  She will have to pay over $30,000 of that money back to the government each year in taxes AND likely forgo over $6,000 per year in OAS payments as they begin being clawed back with incomes above $70,954. 

If Lisa instead took out approximately $50,000 per year from her RSP from age 66 -72 she and her estate would save over $145,000 in taxes and reduce OAS clawbacks by over $55,000 (assuming that she lives until age 85). This is a net benefit to her and her estate of over $200,000 in after-tax dollars.

High Income Earning Spouse

RRSP withdrawals can also be highly beneficial for couples where one spouse earns substantially more than the other, providing over $11,000 in after-tax income in the example below. 


Jeff and Sarah are a couple in their early 40s.  Sarah, a graphic designer, decided to work part-time to be home more often with her kids.  Jeff, a lawyer, earns $170,000 per year.  Sarah earns $30,000.  Jeff spends most of his salary to cover family costs, so he has over $50,000 of RRSP contribution room remaining and is rarely able to max out his contributions.  Sarah has an RRSP of $50,000. 

If Sarah cashes out $20,000 from her RRSP in year 1, $20,000 in year 2 and $10,000 in year 3 and Jeff uses those same funds to make his own RRSP contributions, the couple could save $11,420.  The reason the benefit is so large is that Jeff pays tax at the marginal tax rate of 46.4%, so each $1,000 contributed to an RRSP provides an after-tax benefit of $464.  Sarah’s average tax rate on the withdrawal would be 24.4% or a cost of $244 for every $1,000 withdrawal.  Therefore, every $1,000 that Jeff contributes to his RRSP and Sarah takes out from hers provides a net after-tax benefit of over $220.  The strategy makes most sense for couples where one spouse earns substantially more than the other, that spouse has a large amount of RRSP room remaining and he/she is unlikely to use that room for many years.  There will be withholding tax charged on Sarah’s RSP withdrawals, which can be claimed back when she files her tax return. 

Spousal RRSP plans are a further way of utilizing this same strategy to increase a family’s after-tax income.  Jeff is able to take a full tax write-off for every dollar contributed to a spousal RRSP.  But after three years, any withdrawals from a Spousal RRSP will be attributed from a tax perspective to Sarah.   Consequently, by Jeff contributing $20,000 a year to a Spousal RRSP for Sarah and then Sarah withdrawing that same sum at least 3 years later, the couple can increase their after-tax cash flow by $4,400 per year.

Taking funds out of RRSPs during years where earnings have declined substantially, e.g. if you decided to take a prolonged vacation or sabbatical, or if you are out of work for an extended period of time, may be another way of benefitting from income arbitrage.

RRSPs are a great way for investors to save for retirement, but there are occasions as described above where partially cashing them out can increase overall client wealth.  During the financial planning process, our objective is to ensure that each client’s retirement goals are met by focusing on the appropriate investment mix and by using the most effective strategies available to increase after-tax cash flow and the value for their estates. 

To find out more about this and other tax effective investing and planning strategies, please contact Lorne Zeiler at 416-733-3292 x 225 or by e-mail at

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
Lorne can be reached by email at or by phone at
416-733-3292 x225