Tax Planning
Returns on invested capital should be measured on an after-tax basis. The chosen tax plan and ownership type will greatly impact how much wealth you will accumulate. Both of these concepts are explained below.
Tax plans
What is meant by a tax plan? Well, the most popular are RRSP's, TFSA's and RESP's to name just a few. Indeed, our tax legislation allows specific incentives although the most common characteristics of these plans are well know, when specific strategies are implemented, the taxpayer can more fully benefit from them.
Ownership type
The most common forms of investments ownership are: by the physical taxpayer himself (directly), by a trust (predetermined fixed benefit or discretionary), through a partnership or a corporation. Each of these ownership methods imply differing tax implications. Although legislators would aim to eliminate discrepancies for the sake of equality, the reality is that this objective has yet to be achieved.
Bill Morneau has communicated, on July 18th 2017, a proposal which would greatly the most tax efficient decision. In Quebec, the 2017 provincial budget will be impacting small business owners and investors using holding corporations for financial periods starting after January 1st 2017. It must be noted that although both the federal and Quebec legislation changes affect ownership type decisions, their respective measures differ significantly.
In any case, an astute investor will attempt to own his investments through the most tax efficient option available to him given current and foreseen tax legislation. Unfortunately, there is no one size fits all recommendation since every client's situation, intentions and financial wealth are unique. Although tax planning is not a precise science due to the need to formulate several hypothesis, a proper strategy will account for the most significant variables.