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Tax planning strategies for high-income earners

Depending on your province of residence, you may be subject to tax at a rate of 50% or higher when your income exceeds a set amount.

Discover several strategies that make for a tax-smart wealth plan.

View transcript

These days it can seem like there's a tax on everything and with Canada's progressive tax system the more income you earn the higher your tax rate.

If you face a high tax burden, you'll be interested in how you can reduce it or at least manage it.

One way is with insurance.

Most people think of insurance for their home, their Auto and life.

But did you know that life insurance can help cover the taxes due when your estate is settled?

What's more there are Insurance based investment strategies that can provide tax free income during your retirement and tax-free benefits to the beneficiaries of your Estate.

Another way is with family income splitting.

Family income splitting involves transferring investment income that would otherwise be taxed at your higher tax rate to family members who are taxed at lower rates.

Here are two additional ways to split income with your family.

One, a family trust which enables you to provide funds for your children or grandchildren’s needs while reducing taxes.

Two, a spousal loan strategy which enables your lower income spouse to earn investment income at their lower tax rate.

Here's some other ways to reduce tax.

If you have an RRSP contribute as much as you can to maximize the tax deferred growth over time.

Also take advantage of the tax free savings account if you haven't done so already to earn tax-free investment income.

Next look at your non-registered savings and how the different types of investments are taxed.

Capital gains and dividends from Canadian corporations received preferential tax treatment while interest income from GICs or bonds is fully taxable at your marginal rate.

Here's a tip - put more of your interest-bearing investments in your registered accounts like your RRSP where they are sheltered from taxes, then put more of your taxed advantage dividend-paying investments into your non registered accounts.

And here's one more tip.

Always make sure you speak with a qualified professional tax advisor to get the right tax advice for you.

This video is provided by RBC Wealth Management for informational purposes only. The comments contained in this video are general in nature, and do not constitute legal, investment, trust, estate, accounting or tax advice. RBC Dominion Securities Inc.*, Royal Trust Corporation of Canada, The Royal Trust Company, RBC PH&N Investment Counsel Inc., RBC Wealth Management Financial Services Inc. are affiliated corporate entities and member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. *Member – Canadian Investor Protection Fund. Please visit www.rbc.com/legal/ for further information on the entities that are member companies of RBC Wealth Management. ®/TM Trademark(s) of Royal Bank of Canada. Used under license. © 2021 Royal Bank of Canada. All rights reserved.

Asset protection, wealth transfer and estate settlement solutions

A Will and estate plan can be more than a set of directions for executors and loved ones; proactive estate planning can provide the peace of mind knowing that your wishes will be carried out and your loved ones taken care of.

Our estate planning solutions could be ideal if you need help:

Investing your assets while guaranteeing a payout for your beneficiaries
Maximizing the wealth you pass on to your loved one through tax-minimization strategies
Replacing your income in the event of a disability, critical illness or long-term care situation
Transferring your wealth to your beneficiaries tax efficiently
Providing liquidity to help meet the tax obligations and costs associated with settling your estate
Determining the most effective way to give to the charitable causes you support
Managing executor or Power of Attorney duties

To learn more about protecting and transferring wealth, please contact us.

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[MUSIC PLAYING]

I'm probably better equipped than most of my clients to handle the role of an executor. I've been an investment and retirement planner with RBC for four years, and I have a career in banking spanning 32 years. Then in 2016, my best friend entered the hospital with a life threatening illness, and she had named me as an executor. I had the forethought to discuss with her the possibility of obtaining help if things got too complicated. And there were complications right from the start.

Upon her passing, all I wanted to do was to be there for her three young boys. I quickly saw that that could not happen if I spent all my time and energy trying to settle the estate. So I called Celia Ong, a estate and trust advisor, to discuss if RBC Estate & Trust Services could help. My estate and trust advisor stepped in and immediately outlined what had to be done and how. The great part was I had to do very little and could focus on the boys.

To be clear, I always felt engaged and involved. I was just able to let Estate & Trust Services do all the heavy lifting, the details, and the next steps. When you are an executor, you worry that your decisions may be challenged. Not in my case, because I had the support of the professionals.

Being an executor can be an overwhelming and challenging responsibility. A first time executor might not know where to start or might not be aware of their duties, responsibilities, and liabilities for that matter. In this case, Downeen has a full time job and family of her own to care for, and now looking after a second family. Acting in the best interest of her friend's estate meant using RBC's agent for executive services and having professional advice every step of the way.

As an RBC Estate & Trust advisor, I like knowing we can help our clients in their time of need. RBC simplifies the estate administration process and lightens the load executors might feel. Given the responsibility, risk, and time commitment involved, it's good to know that we have a caring team of experts that are here to help.

As the population ages, we all seek to better equip ourselves with the tools and resources to help our clients navigate through their various life events. Rest assured that Estate & Trust services has the right professionals, with the right expertise, and the right approach to be a part of your team of professional experts.

This video is provided by RBC Wealth Management for informational purposes only. The comments contained in this video are general in nature, and do not constitute legal, investment, trust, estate, accounting or tax advice. RBC Dominion Securities Inc.*, Royal Trust Corporation of Canada, The Royal Trust Company, RBC PH&N Investment Counsel Inc., RBC Wealth Management Financial Services Inc. are affiliated corporate entities and member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. *Member – Canadian Investor Protection Fund. Please visit www.rbc.com/legal/ for further information on the entities that are member companies of RBC Wealth Management. ®/TM Trademark(s) of Royal Bank of Canada. Used under license. © 2021 Royal Bank of Canada. All rights reserved.

Easing the burden of being an executor

Being an executor can be an overwhelming and challenging responsibility. Acting in the best interest of her friend’s estate meant using RBC’s Agent for Executor Services and having professional advice every step of the way.

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This tool is for illustrative and general information purposes only and is not intended to provide specific financial, investment, legal, tax or other advice, and should not be relied upon in that regard. Royal Trust Corporation of Canada and The Royal Trust Company (RBC Royal Trust) uses reasonable effort to include accurate and up-to-date information in this tool, but cannot guarantee that all information is accurate or complete or current at all times. The information or results provided by this tool is based on the accuracy and completeness of the information provided. RBC Royal Trust does not make any express or implied warranties or representations with respect to any information or results in connection with the tool. Royal Bank of Canada will not be liable for any losses or damages arising from any errors or omissions in any of the information or results, as well as any action or decision made by you in reliance on any information or results.

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With most investment programs, you are fit to the program. However with A+, the program is fit to you. Your A+ portfolio is individually crafted based on your unique needs for capital growth, investment income and asset preservation. Then, your A+ portfolio is professionally managed for you within strict parameters, freeing you to focus on your other important priorities with confidence.

Your customized A+ portfolio provides:

The expertise of leading independent asset management firms, carefully assessed through in-depth research, and brought together in a coordinated, customized portfolio
The latest portfolio management technology that brings together multiple asset managers into a single, unified portfolio with consolidated reporting and synchronized asset allocation
A proven investment discipline that ensures your portfolio is set, monitored and rebalanced according to your specific investment guidelines
A modern approach that can help you achieve your financial goals, without compromising on your personal values

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Expanding your retirement income stream

When it comes to maintaining a comfortable retirement, income could be an important part of your plan. With expert advice and smart solutions, you can convert your nest egg into regular, tax-efficient retirement income.

Watch this video to learn about several strategies for generating regular income while managing risk.

View transcript

If you're retired, you know firsthand how difficult it can be to get a satisfying retirement income.

Traditional retirement Investments Like GICs and bonds continue to pay very low interest after taxes and inflation there can be very little left over.

What's more people are living longer so they need their retirement savings to last longer too.

So what can you do to maximize your after tax retirement income without taking on too much risk?

Here are a few ideas.

First, get the most out of your interest paying investments with a GIC or bond ladder.

For example, with a 5-year Bond ladder you invest equal amounts in a 1, 2, 3, 4 and 5 year bond.

Now as each bond matures you reinvest in a new five-year bond. At the end of five years you hold only five year bonds.

The advantage?

Longer-term bonds historically pay higher interest than shorter term bonds.

Second, look at other investments that pay higher income.

Some options include corporate bonds, insurance company guaranteed investments, and dividend paying stocks.

They all have higher risk than traditional GICs and government bonds, to varying degrees, but you can reduce the risk through diversification.

The key is to find the right balance between higher income and lower risk based on your individual situation.

Third, consider how different investments are taxed in your regular non-registered accounts.

For example, dividends from Canadian corporations enjoy tax advantages while interest from GICs and bonds are fully taxable.

Sticking with the tax theme, also consider income splitting with your spouse to enhance your combined after-tax income.

With this strategy you transfer income from the higher-income spouse to the lower-income spouse so your combined tax rate is lower.

You can split up to 50% of your eligible pension income like RIF income with your spouse.

You can also split income with a spousal RSP or a spousal loan strategy.

These are just a few ideas for enhancing your retirement income.

If you would like more ideas specific to your situation, I invite you to contact an RBC Wealth Management advisor.

This video is provided by RBC Wealth Management for informational purposes only. The comments contained in this video are general in nature, and do not constitute legal, investment, trust, estate, accounting or tax advice. RBC Dominion Securities Inc.*, Royal Trust Corporation of Canada, The Royal Trust Company, RBC PH&N Investment Counsel Inc., RBC Wealth Management Financial Services Inc. are affiliated corporate entities and member companies of RBC Wealth Management, a business segment of Royal Bank of Canada. *Member – Canadian Investor Protection Fund. Please visit www.rbc.com/legal/ for further information on the entities that are member companies of RBC Wealth Management. ®/TM Trademark(s) of Royal Bank of Canada. Used under license. © 2021 Royal Bank of Canada. All rights reserved.

Achieve and maintain a comfortable retirement

Whether you're years away from retiring, close to retirement or already retired, a comprehensive plan and expert advice are critical in building and protecting your retirement dream.

We're there every step of the way, delivering the strategies, service and solutions that you may need to help achieve or maintain a comfortable retirement.

Our retirement planning solutions can be ideal if you need help:

Projecting your retirement needs and the steps required to achieve them
Creating diversified, tax-efficient retirement income with your nest egg
Protecting your wealth with the right balance of risk and reward
Keeping track of your savings goals and portfolio performance
Considering the tax advantages of holding certain investments outside of an RRSP
Planning when to withdraw from your investment accounts tax-efficiently
Designing a tax-smart estate plan for a quick and efficient transfer to your loved ones
Safeguarding personal assets and your family's lifestyle from adverse events
Building an enduring legacy with your capital, time and passion
Planning family income-splitting strategies

To learn more, please contact us.

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