What a Wild Ride!
Most of us have never seen such an unprecedented year as that of 2020. However, our clients have managed to receive remarkable returns because our focus is on global investments. Since only three percent of the MSCI World Index is represented by Canada, 97% of opportunities outside of Canada are being missed by investors.
Our banking system is superb, and we have many resource companies. Nonetheless, companies like
Couche-Tard or Shopify are the exception to the rule. Add in to that, many wonderful emerging
companies end up being bought out by foreign entities.
Despite these challenges, we have been fortunate to have new clients who have transferred their
wealth to us for management. Because of this movement, we have learned several things.
Many investments are in the wrong accounts. For example, people may have US paying dividend stocks
in their TFSA account. This results in the investor being charged a 15% non-resident tax which cannot be
recouped. To illustrate this, let’s say an investor holds US stock that pays a five percent dividend. The
non-resident tax would amount .75% which would result in a 4.25% net. If you compound that over the
TFSA’s lifetime, that can add up to a large amount of lost return.
Another example entails owning a foreign investment that pays a dividend in a Canadian Controlled
Private Corporation (CCPC) or holding company. The result could be that the investor would pay an
excess of 65% in taxes. To further break down that number, 50% is tax on the income and the remaining
15% is non-resident tax. Remember, you cannot get back the non-resident tax.
Another thing to consider is the new passive income for CCPC and holding companies. The recent
changes to passive income can be confusing, and that is where we can be of great help to you. Take
advantage of using a professional to help you invest your wealth to maximize your return rather than
losing out to unknown factors. A popular adage is “it’s not what you make, it’s what you keep”. Another
one is “don’t spend money you don’t have”. If you have a professional guide you through our
progressive tax system, and, better yet, include your appropriate-aged children in understanding the
taxman, this will aid in developing an appreciation of the value of money.
Circling back, it is imperative to place your investment in the right account, whether it be a registered
retirement income fund, a registered retirement savings plan, a TFSA, a corporate investment account
or a non-registered account. We have generated an algorithm that will assign the right investments to
the right accounts.
Just as it is said in real estate, “location, location, location”. When it comes to the best investment for
you, that could not be more accurate.
This information has been prepared by Paul Drouin who is a Senior Wealth Advisor for IA Private Wealth
Inc. Opinions expressed in this article are those of the Wealth Advisor only and do not necessarily reflect
those of IA Private Wealth Inc. IA Private Wealth Inc. is a member of the Canadian Investor Protection
Fund and the Investment Industry Regulatory Organization of Canada.