For high-net-worth individuals, tax planning is essential. We all know paying taxes is unavoidable, but it is still possible to strategically manage your taxation to minimize your liability as much as possible. Tax planning can help reduce tax liabilities while ensuring compliance with applicable laws and regulations. High-net-worth tax planning is also a central part of creating intergenerational wealth. Momentum Financial can help households and individuals with strategic tax management approaches, using every available tax deduction and credit or exemption to ensure you can keep more of your hard-earned money for you and your family.

Take Control of Your Tax Strategy Today

Momentum Wealth provides expert guidance for high-net-worth individuals and businesses. Work with our tax planning advisors to secure your financial future.

 

What is Tax Strategic Planning?

Tax planning is about maximizing tax efficiency and minimizing the overall tax burden. It should be an essential part of every investment or high-net-worth wealth management plan. Your strategic tax plan should include a thorough analysis of your financial affairs and tax implications. This breakdown must include a projection of your marginal tax rate, the tools that can be used to minimize tax liabilities, and the projected reduction of your tax bill as a result. A tax planner will help you organize the timing of your income to distribute it across different tax periods, thus reducing the amount of tax you owe. It can also include plans for retirement funds, TFSA savings, or provisions for gain-loss harvesting. Tax gain-loss harvesting involves the strategic planning of the sale of assets to reduce capital gains taxes, helping reduce the tax paid on investment income.

The Importance of Strategic Tax Planning

The purpose of tax planning is to reduce an individual’s tax liability as far as is legally possible, and allow them to keep more of their money. By taking advantage of all available tax deductions and credits and timing income and expenses carefully, you can reduce your income tax to a minimum. Strategic tax planning can help you comply with tax laws and regulations while maximizing your cash flow. Tax strategies can be complex and overwhelming, which is why it is important to work with an expert tax planner who can ensure you reap all the tax advantages to which you are entitled.

Reducing Taxes For High-Income Earners

Since Canada has a progressive tax system, high-income earners and high-net-worth individuals will naturally pay a higher percentage of their earnings to the government. That said, they also have more tax reduction tools at their disposal. These include:

  • Income splitting: This involves a collaborative effort among a high-net-worth family to reduce their overall tax liability at the expense of one or two of them paying higher taxes than they otherwise would. You should be aware of the tax on split income rules (TOSI) as they have become more restrictive in recent years.
  • Maximizing Registered Retirement Savings Plan (RRSP) contributions: You can manage your RRSP contributions in such a way that your tax liability is deferred, reduced, or both. For example, you may choose to make early contributions. If you were to pay your contributions in January this year rather than the end of February next year, your savings will enjoy tax-deferred growth for the next 14 months.
  • Tax-efficient investments: These include exchange-traded funds and mutual funds), and the planned use of charitable giving to enable tax deductions.

Effective Tax Planning Strategies

Tax planning is not a once-off thing, nor something you only think about when tax season approaches. It is a proactive approach that you incorporate into your financial planning every day throughout the year. Most tax planning strategies incorporate the following tactics in various ways:

  • Income reduction: The less you earn, the lower your tax brackets, which reduces your tax liability. Some methods to reduce your taxable income include investing in tax-free savings accounts, maximizing your RRSP contributions, deferring capital gains, and selling assets in installments.
  • Increasing tax deductions: Many people pay more taxes than they need to because they are unaware of the available deductions. Your certified financial planner will ensure you don’t miss out on any of the deductions available.
  • Maximizing tax credits: Likely you are not claiming all the tax credits available to you. A tax plan can include detailed research into credits and outline a strategy to use them to maximum advantage.
  • Income timing: By timing your income carefully, you can move down into a lower bracket and reduce what you owe in taxes.
  • Optimize your investment portfolio for tax efficiency: A wealth advisor will help you distribute your investments into more tax-efficient assets and instruments, which reduces your tax liability overall while ensuring that you continue to see rewards from your investments.

Let Momentum Financial help you with financial planning for your personal finances or business finances. Contact us today to begin working with a strategic tax planning advisor.