As the deadline to file income tax returns approaches, BMO Nesbitt Burns issued a study which found that only half (51%) of Canadians regularly seek out tax-smart options when considering new investments.
The study also found that a majority of Canadians say they are lacking knowledge about the tax treatment of certain types of investment income that can reduce their overall tax liability:
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Fifty-nine per cent are unsure how capital gains are taxed.
Similarly, 59% are uncertain how dividend income is treated from a tax perspective.
John Waters, vice-president, head of Tax & Estate Planning, BMO Nesbitt Burns, said: "One of the reasons why people don’t seek out tax efficient investing solutions may very well be because many don’t fully understand how investments are taxed. Being aware of how investments are affected by taxes is the first step to being tax smart with your portfolio, and can be crucial in maximizing your overall return."
Mr. Waters noted that an Investment Advisor can play a critical role in helping clients understand the tax implications when investing and working with clients to determine investment solutions that best fit their specific needs and goals.
BMO Investments Inc. offers a variety of tax smart investing options, including BMO SelectClass Portfolios – a series of four risk differentiated portfolios constructed within a corporate class structure which allow investors to accumulate capital in a tax-efficient manner, through tax-deferred growth potential and tax-efficient monthly cash flow.
Do charitable donations influence Canadians’ tax decisions?
The study also found that the majority (54%) of respondents stated that tax credits offered on charitable donations do not have much (or any) influence on their decision to give.
Waters added: "The tax system is designed to encourage Canadians to donate and support charitable causes, so there’s definitely an incentive for people to consider factoring giving into their yearly budget. Donating to charity provides not only the opportunity to do good, but can also reduce your income tax bill and put a little money back into your pocket."
Mr. Waters added that donations can be claimed in the tax year they were made or carried forward for up to five years. To optimize tax savings, spouses can pool their charitable donations.
Additionally, incentives like the "First-Time Donor’s Super Credit" (FTDSC), which is available until 2017, encourages Canadians to support charities by giving new donors an extra, one-time 25% federal tax credit for cash donations up to a maximum of US$1,000. For example, under the FTDSC, with a donation of $500 the federal tax savings to you would be US$242, which is in addition to the savings from your provincial donation tax credit.
