Canadians in the dark over taxes on their investments: Study

Advisors need to improve their communication with clients over how their investments are impacted by taxes, according to results from a new study.

Advisors need to do a better job at explaining tax implications on investments to their clients, given the results from a BMO Nesbitt Burns study, released Monday.

The fourth-annual national tax study concluded that just 41 per cent of Canadians reported understanding how their capital gains and dividend income is treated from a tax perspective. Respondents indicated feeling most aware of how their income was taxed and the tax implications on their RRSPs (77 per cent and 75 per cent respectively).

"...Understanding how investments are taxed is an important part of good financial planning," said John Waters, Vice-President, Head of Tax & Estate Planning of BMO Nesbitt Burns in a news release. "If you want to derive the maximum return from your investment portfolio, then it's critical that you be tax smart and understand the potential tax implications that could arise when you make an investing decision."

Waters recommends that advisors consider implications, such as transitioning assets to the next generation, when working with their clients to determine the most tax efficient investment portfolio.

The study also found that the the majority of Canadians are feeling confident that their 2013 tax returns will take advantage of all the tax deductions, tax credits and other tax savings that may be available to them.

What do Canadian's plan to do with their tax refunds?

  • Thirty-seven per cent will cover household bills and/or reduce their debt load (credit card balances and debt other than mortgage).
  • Twenty-eight per cent will save or invest.
  • Thirteen per cent will fund vacations or purchase leisure items.
  • Eleven per cent will do home renovations.
  • Just under 10 per cent have decided to pay down their mortgages.
  • Three per cent will donate to charitable causes.

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