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Make your money last longer with this tax efficient cash-flow strategy

Updated: Apr 27, 2021

Make your money last longer with this tax efficient cash-flow strategy

Brendan Greenwood CIM, QAFP, B.Comm | March 29, 2021

More creative thinking is needed to generate passive investment income in today’s ultra-low interest rate environment. Instead of seeking higher yield investments that can add unnecessary risk to your portfolio consider a return of capital strategy within a corporate class fund that can provide greater cashflow and defer tax.

Receiving return of capital first, defers the receipt of taxable investment returns and the associated tax providing greater immediate cash flow.

See the 2021 combined Federal/Ontario top marginal tax rates below:

This return of capital strategy allows taxable income to be deferred so more money can stay invested longer and grow. See example below reflecting the advantage of tax deferral.

When taxable income is eventually paid out, it receives preferential capital gains tax treatment through the corporate class structure allowing you to keep a greater portion of your investment returns. See comparative advantage of the corporate class structure in the chart below.

The strategy can be deployed with as little as $100,000. The Fidelity Investment analysis below used a $1 million dollar investment portfolio over a 7-year period to highlight the potential added value the strategy can provide for retirees seeking additional cash flow. The average annual cashflow over 7 years was 7.5% of the original principal amount invested and the closing balance of the account was approximately $2.5 million.

It’s important to remember that past performance is not a predictor of future performance and market conditions are constantly changing, so the implementation of a strategy like this should be carefully reviewed with your advisor. If you are looking for ways to tax-effectively increase your investment portfolio’s cashflow in retirement this is one option you should explore.

Brendan Greenwood is an Investment Advisor with Worldsource Securities focused on personal pension strategies and leveraging technology to provide progressive institutional style investment solutions for professionals, incorporated individuals, business owners, retirees and their families.

For other articles authored by Brendan Greenwood on issues impacting business owners and individual investors see

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

This material has been prepared for informational purposes only and should not be considered personal investment advice or solicitation to buy or sell any securities. As well, it is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It may include information concerning financial markets as at particular point in time and is subject to change without notice. Every effort has been made to compile it from reliable sources, however, no warranty can be made as to its accuracy or completeness. Investors should seek appropriate professional advice before acting on any of the information here. The views expressed here are those of the authors and writers only and not necessarily those of Worldsource Securities Inc., its employees or affiliates. There may also be projections or other "forward-looking statements." There is significant risk that forward looking statements will not prove to be accurate and actual results, performance or achievements could differ materially from any future results, performance or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Before acting on any of the information provided, please contact your advisor for individual financial advice based on your personal circumstances. Worldsource Securities Inc., is the sponsoring investment dealer and the member of Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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