Boost portfolio returns by keeping tax dollars invested beyond this tax season: Dale Jackson

A T1 General tax form is shown in this file photo. THE CANADIAN PRESS/Graeme Roy

There is a risk-free way for investors to boost returns from their retirement portfolios; keep more tax dollars invested and compounding over time.

If you’re sitting down with a tax professional ahead of the April 30 tax filing deadline, it could be worthwhile to discuss your tax strategy beyond the current fiscal year.

A recent study conducted by IG Wealth Management found 36 per cent of Canadian tax filers felt they were not doing their taxes efficiently and were leaving money on the table.

There are four basic tax perks available to average investors that can be utilized and coordinated for maximum savings.

Reinvest your RRSP refund

Another recent survey from TD Bank found 57 per cent of Canadians, expecting a tax refund from a Registered Retirement Savings Plan (RRSP) contribution, planned to invest it.

About 76 per cent of Gen Z (born between 1997 and 2012) respondents also planned to invest their refunds, which allows more time for that extra cash to compound in investments.

The RRSP is a great retirement savings tool because contributions can be deducted from your income to lower the previous year’s tax bill, and grow tax-free in investments for decades.

The biggest savings come to those with big incomes who would normally be taxed at a high marginal rate. As an example; if your top rate is 40 per cent, your refund will be about 40 per cent of your contribution.

Reinvesting your refund in your RRSP will not only add to the total amount compounding in investments over time, but will also generate further refunds.

Balance RRSP contributions with a TFSA

There are limits to how much you can contribute to your RRSP but even they can be too much. Unfortunately, contributions and all the returns they generate over the years are fully taxed according to the going marginal tax rates when they are withdrawn.

You could be the victim of your own success - and even have some of your Old Age Security (OAS) benefits clawed back - if your annual RRSP withdrawals are taxed at a higher rate than the original contribution.

That’s when you need to plan into the future and determine how much of your savings and RRSP refunds should be channeled into your Tax Free Savings Account (TFSA).

Unlike RRSP contributions, TFSA contributions can not be deducted from income but they - along with any investment returns they generate - are not taxed when they are withdrawn. The only exception are dividends from U.S. equities.

You can adjust that balance according to each year’s income and over time as your retirement goals become clearer, but the ideal tax situation would allow you to draw income from your RRSP at a low marginal rate and top up any additional income from your TFSA.

Capital gains exemption in non-registered accounts

There are also contribution limits on TFSAs, but there are ways to incorporate investments in non-registered accounts into your tax strategy.

The biggest tax advantage outside of a TFSA or RRSP is the 50 per cent capital gains exemption, which only taxes half of the gains on stocks or other equity investment when they are sold. The annual threshold is limited to $250,000.

While a 50 per cent capital gains exemption is not as good as a 100 per cent exemption in a TFSA, investors in non-registered accounts can also benefit from market losses. Tax-loss selling permits the use of equity losses to recoup capital gains taxes already paid in the past three years or apply them against future capital gains.

The capital gains exemption also applies to the sale of company shares from employer share plans and most other equities purchased or obtained outside a registered account.

Dividend tax credit

If you’re looking for a tax perk with a ‘buy Canadian’ theme, credits can also be applied to dividend income from eligible Canadian corporations held in non-registered trading accounts.

Dividend tax credits are Canada’s way of reducing what is known as “double taxation” by offsetting dividend payouts already taxed to the corporation.