Event 4 of the 12Event Planning Model
Investments & Portfolio Alignment
Where Your Investments Live
Where you hold investments decides how much you keep.
How TaxOnTax helps at this event
How each account you hold is taxed, and how withdrawals land on your return. The practice does not sell or recommend investments.
Start with a free 15-minute call: (825) 977-7999 or send a request
Why this matters
Most of us are taught that investing is about one question: what should I buy? Pick the right funds, the right mix, the right amount of risk, and the rest takes care of itself. That question matters, but it’s only half the story. The other half, the half almost nobody talks about, is where you hold what you buy, and when you choose to sell it. Those two decisions, location and timing, shape how much of your return you actually get to keep.
It helps to picture two different leaks in any portfolio. The first is obvious: poor investments, or plain bad luck in the market. Everyone worries about that one. The second is silent: perfectly good investments taxed a little more than they needed to be, year after year, simply because of where they happened to sit. The first leak makes headlines. The second quietly drains far more money from far more people, and almost no one notices, because nothing ever appears to have gone wrong.
What most Canadians get wrong
When it comes to investing and tax, the same handful of missteps shows up in nearly every portfolio that has grown without a plan:
- They obsess over what to buy and ignore where to hold it. Endless energy goes into picking investments, and almost none into deciding which account each one belongs in. Yet for most people, location is the easier decision and frequently the more valuable one.
- They keep their highest-growth holdings out of the tax-free bucket. Cash and safe, slow holdings fill the one account that could have sheltered enormous growth tax-free.
- They trigger gains they didn’t need to. Selling a winning investment for no pressing reason (to chase the next idea, or simply to tidy up) can turn a gain that was costing nothing into a tax bill due this spring. Sometimes the most profitable move is to do nothing at all.
- They let the tax tail wag the dog. The opposite error: clinging to a bad investment purely to avoid the tax on selling it. Avoiding tax is a goal, but it is never the only goal. A poor holding kept solely for tax reasons can cost far more than the tax ever would.
- They ignore the cost of fees. Tax is only one leak. High investment fees, year after year, can drain a portfolio as surely as poor location, and unlike the market, fees are one thing entirely within your control.
- They panic at exactly the wrong moments. Selling in a downturn locks in losses and often triggers a tangle of tax consequences on the way out. The investors who keep the most are usually the ones who do the least when everyone else is doing the most.
Your simple checklist
- Can you see all your accounts (ordinary, retirement, tax-free) in one place?
- Are your most heavily taxed holdings sheltered inside your registered accounts?
- Is the long-term money in your tax-free bucket invested for growth, not sitting as idle cash?
- Are your gentlest, most tax-efficient holdings the ones in your ordinary account?
- When you rebalance, are you doing it inside your shelters first?
- If you sell a loser to offset a gain, are you avoiding buying it back within thirty days, in any of your accounts, including your registered ones?
- Are you choosing the year you realize big gains, rather than letting them happen by accident?
- Do you know exactly what you’re paying in fees?
Questions to bring to your Discovery Meeting
- Should my interest-paying investments sit inside my Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) rather than my non-registered account?
- Do my Canadian dividends qualify for the dividend tax credit, and are they better held in my non-registered account?
- Can I use capital losses this year, or net capital losses carried forward from earlier years, to offset my capital gains?
- If I sell an investment at a loss, how do I avoid having it denied under the superficial loss rule?
- Do I have accurate adjusted cost base (ACB) records for every investment in my non-registered accounts?
- Will the gross-up on my Canadian dividends raise the net income used for my benefits and the Old Age Security (OAS) pension recovery tax?
The TaxOnTax™ Insight
The market decides what your investments earn. Where you keep them, and when you sell, decides how much of it is still yours at the end.
Excerpted from Chapter Four, “Where Your Investments Live”, of TaxOnTax™: The 12Event Planning Model, second edition, by Derik Godbout. Lightly trimmed for this page; the full chapter adds a worked example and the before-and-after steps.
Start with a free 15-minute call
Not sure whether the practice is the right fit? A free 15-minute call is the easiest first step. From there, a Discovery Meeting is a focused, one-hour working session, not a sales pitch. It is a paid session, and the fee is confirmed with you when you book.
Call (825) 977-7999 Request a call or meeting
Not sure which events apply to you? Take the 12Event Finder.
TaxOnTax™ Advisory Ltd. is a tax planning, accounting and executor advisory practice that also provides plain-language tax education. Derik Godbout is a PBA, CEA and DMA, Personal Tax Services Specialist™, not a CPA, lawyer, registered investment adviser, or licensed insurance professional. Nothing on this site constitutes personalized tax, legal, investment, or insurance advice. Always consult a qualified professional before acting on any information.