Top Tax-Saving Strategies for High-Income Canadians

Maximize wealth while minimizing your tax burden

As a high-income earner in Canada, your financial success comes with a greater tax liability. With top federal and provincial marginal tax rates exceeding 50% in some provinces, strategic tax planning is essential to preserving and growing your wealth.

At Cox Financial Group, we specialize in helping high-net-worth individuals optimize their financial strategies. Below, we outline some of the most effective tax-saving strategies available to high-income Canadians.

1. Maximize Registered Account Contributions

RRSP (Registered Retirement Savings Plan)

RRSP contributions are a cornerstone of tax planning. Contributions are tax-deductible, reducing your taxable income in the year they’re made. Growth within the account is tax-deferred until withdrawal; ideally in retirement, when your income (and tax rate) may be lower.

Tip: Consider using your RRSP room strategically in high-income years, and consider a spousal RRSP for income splitting in retirement.

TFSA (Tax-Free Savings Account)

While TFSA contributions are not tax-deductible, all investment income and capital gains grow tax-free and withdrawals are not taxed. This makes the TFSA an excellent tool for tax-efficient growth.

Tip: Use your TFSA for investments with high growth potential or poor tax treatment to maximize tax-free gains.

2. Incorporation and Income Splitting

If you’re a professional or business owner, incorporating your practice or business can offer significant tax deferral and income-splitting opportunities.

• Tax Deferral: The small business tax rate is significantly lower than the top personal rate. Leaving excess earnings in the corporation allows for tax deferral and potentially compounding growth.
• Dividends to Family Members: With proper planning, paying dividends to adult family members can reduce the overall tax burden.

Caution: The “TOSI” (Tax on Split Income) rules are complex and may limit income splitting. Professional advice is crucial here; ensure you consult your CPA about income splitting options in your corporation.

3. Individual Pension Plans (IPPs)

An IPP is a defined benefit pension plan typically used by incorporated business owners or key executives. IPPs allow for larger annual contributions than RRSPs, especially as you age, and offer creditor protection and potential past service funding.

Benefit: Greater contribution room, especially for individuals over 40, and a predictable retirement income stream.

4. Tax-Efficient Investment Planning

High-income earners often pay substantial tax on investment income. Structuring your portfolio with a focus on tax efficiency can significantly reduce this burden.

• Prioritize capital gains and eligible Canadian dividends over interest income.
• Hold interest-bearing investments inside your RRSP or TFSA, where the income is shielded from tax.
• Use corporate class mutual funds or ETFs for more efficient tax treatment of distributions.

5. Charitable Giving

Strategic philanthropy can reduce your tax bill while supporting causes you care about.

• Donations to registered charities are eligible for tax credits of up to 75% of your net income.
• Consider donating publicly traded securities with accrued gains to eliminate the capital gains tax and receive a donation receipt for the full fair market value.
• If you’re charitably inclined, consider setting up a donor-advised fund to meeting your tax and charitable goals.

6. Prescribed Rate Loans for Income Splitting

If you’re supporting a spouse or adult children in a lower tax bracket, a prescribed rate loan can allow you to shift investment income to them, reducing overall tax.

How it works: You lend money at CRA’s prescribed rate (currently low by historical standards), and the borrower invests the funds. Investment income is taxed in their hands, not yours.

7. Professional Tax and Wealth Planning Advice

Tax legislation is complex and frequently evolving. While these strategies offer significant opportunities, they must be implemented carefully and tailored to your unique circumstances.

At Cox Financial Group, we work closely with our clients and their tax advisors to develop personalized tax minimization strategies as part of a comprehensive wealth management plan.

Let’s Talk

If you’re a high-income Canadian looking to reduce your tax burden and build long-term wealth, we invite you to connect with our team. We’re here to help you make smart, strategic financial decisions.