Understanding Taxes and Financial Advisors
I’m sorry to hear that your consultant was not helpful, Louise. The financial industry made it confusing for consumers, and most financial advisors do not offer financial advice. They usually offer investment advice or insurance advice that generally concentrate on the products that you have licensed for customers or that your company sells. As a result, your advice can be limited.
The Role of Financial Advisors in Tax Advice
Many consultants have tax knowledge and in some cases they are very well equipped. The consultant who manages your investments may not have the answers to tax issues. It’s essential to ask your financial advisor about taxes to get a clear understanding of how your investments will be taxed.
Possession and Sale of Investments in Canada
How investments are taxed depends partly on the type of account they are kept in. There are two main types of accounts: tax-moving accounts and non-taxable accounts.
Tax-Moving Accounts
These accounts, such as tax-free savings accounts (TFSAS) and registered pension savings plans (RRSPS), can have tax effects on the income. Although they may not have changed completely tax, there are still some tax implications to consider.
Non-Taxable Accounts
Non-taxable accounts, on the other hand, require you to pay taxes on the income. For example, if you have a guaranteed investment certificate (GIC) or a taxable non-registered account, you may have to pay taxes on the interest earned. The same applies to stocks that pay dividends or investments such as investment funds and stock market funds (ETFs) that achieve an income from the underlying investments.
Tax Implications of Selling Investments
If you sell an investment, the tax only applies to taxable accounts. Capital gains or losses are irrelevant in a tax-free savings account (TFSA) and a registered retirement provision plan (RRSP). In a taxable account, the sale of an investment usually leads to a capital gain or loss, half of which is taxable (a capital gain) or tax deductible against capital gains (capital loss).
Withdrawal of Taxable Accounts
If you withdraw from a taxable account, the payment itself is not taxable (unless it comes from a company that is usually seen as a personal income, whether salary or dividend). Income in a taxable account – whether interest or dividends – or profit from a sale that is taxable as a capital profit is the focus of taxes. The tax on this income applies regardless of whether the money is withdrawn or not. The reinvested income is still taxable.
Conclusion
In conclusion, understanding how your investments are taxed is crucial to making informed financial decisions. It’s essential to ask your financial advisor about taxes and to consider the type of account your investments are held in. By doing so, you can minimize your tax liability and maximize your returns. Remember, tax implications can vary depending on the type of account and investment, so it’s crucial to seek professional advice to ensure you’re making the most of your investments.