Minimize Taxes or Maximize Refunds? Tax strategies all Canadians can learn from the affluent: Scotia Private Client Group Study

  • Affluent Canadians focus primarily on minimizing the taxes they pay year to year while average Canadians focus on maximizing tax refund
  • Affluent Canadians are more than twice as likely as other Canadians to have a tax plan or strategy in place to help minimize the taxes they pay year to year
  • Experts offer five strategies all Canadians can learn from affluent Canadians during tax time

TORONTO, April 18 /CNW/ - It may be tax season for all Canadians but when it comes to tax planning, a new study by Scotia Private Client Group (conducted by Vision Critical) reveals that affluent Canadians have a very different approach than other Canadians.  The study, which assessed Canadians' attitudes toward tax planning, revealed that affluent Canadians are half as likely to focus on maximizing their tax refund:  the primary focus of affluent Canadians is to minimize the taxes they pay (62 per cent), while the average Canadian hopes to maximize their tax refund (57 per cent).  In addition, affluent Canadians are more than twice as likely as other Canadians to have a written tax plan or strategy in place to help minimize the taxes they pay (32 per cent versus 15 per cent).

The study also showed that affluent investors are split between meeting short, medium and long-term financial goals when planning their taxes (38 per cent, 33 per cent and 29 percent respectively) while other Canadians focus primarily on the short-term (62 per cent). While both groups tend to consider tax planning for retirement, affluent Canadians are also looking ahead at other life stage strategies including one in two (47 per cent) at transferring their estate and 40 per cent at charitable giving in a tax efficient manner.

"It's not surprising that wealthy Canadians tend to look at reducing their taxes over the long term," said Adam Salahudeen, Director, Taxation Advisory Services, Wealth Management, Scotiabank.  "They don't focus on immediate benefits like one year's tax refunds but instead look at their financial circumstances, including any significant life events on the horizon and how these might affect their finances in general and ultimately their tax liability.  When you take a longer view of your entire financial picture you can identify where you can take advantage of financial opportunities."

Given their more complex needs, affluent Canadians are more likely than Canadians in general to have considered various strategies to minimize their taxes (89 per cent versus 59 per cent). Affluent Canadians are nearly twice as likely to have considered 'building investments for retirement' when planning their taxes (72 per cent versus 41 per cent).

When asked which strategies they have assessed to maximize their after-tax investing returns affluent Canadians have: reviewed their investment portfolios to maximize after-tax dollars (69 per cent) or for tax-loss selling opportunities (48 per cent) and have allocated investment income to registered and non-registered accounts (68 per cent).

"One of the most interesting findings of the study is the focus of the affluent on tax minimization as opposed to refund maximization,"said Laura Wallace, Vice-President & Portfolio Manager, Scotia Asset Management. "A key factor in building wealth is to increase the amount of money available for investment. It is a popular misconception that a large refund is indicative of an optimal tax strategy- in fact it may indicate the opposite."

Ms. Wallace also points out that another common misconception is that tax minimization strategies only make sense for the very wealthy.  "Many tax minimization techniques, such as income splitting, are appropriate for average levels of wealth. Good advice and solid planning are critical to maximizing after tax income," said Ms. Wallace.

Five strategies we can learn from the affluent at tax time include:  

  1. Take a longer view.  Don't just think about your taxes at tax time - plan from the beginning of the year and look ahead. Often life events, such as having children, buying a house, paying for education or caring for elderly parents can trigger significant tax opportunities.
  2. Invest in a tax-wise way.  When it comes to tax planning, it's important to be aware of what's in your portfolio and the tax implications.  By continually looking at your short, medium, and long term goals you'll be able to make tax-wise decisions.  In addition, investments should always be looked at holistically and don't be afraid to reinvest your dollars for bigger gains, since the gain is sometimes worth paying the taxes.
  3. Work with an advisor on an overall financial plan which includes tax planning.  Most people need help when it comes to financial planning and seek out expert advice.  Financial advisors also have the knowledge and resources to help you become more aware of things like tax credits and deductions. Elements of financial planning are best considered together - whether it's your investments, taxes, or insurance, ask your advisor to help build a cohesive strategy so decisions are not made in isolation.
  4. Work Together.  Make planning your taxes a family affair.  Consider your family members to leverage opportunities like income or pension splitting, family credits, or school credits to maximize your tax benefits (experts can also help with this).
  5. Be creative but prudent.  Look to your tax advisor to help ensure that you use the appropriate tax planning method(s) in order to appropriately enjoy the tax benefit.

About the Survey

The SPCG Affluent Investor Poll surveyed a representative sample of 502 Canadians with $500,000 or more in Investable Assets. The online survey was conducted by Vision Critical among Angus Reid Forum panelists and the fieldwork was competed March 10-17, 2011. A concurrent online poll was fielded among Canadians 18+, asking the same questions as the SPCG Affluent Investor Poll. A total of 1,021 online interviews were conducted with Canadians 18+.  Vision Critical is a leader in the use of the Internet and rich media technology to collect high-quality, in-depth insights for a wide array of clients.

About Scotia Private Client Group:
Scotia Private Client Group provides customized solutions to help high net worth clients build, preserve and transfer their wealth.  Scotia Private Client Group consists of private client services from The Bank of Nova Scotia, The Bank of Nova Scotia Trust Company, Scotia Asset Management L.P., Scotia Asset Management U.S. Inc., ScotiaMcLeod Financial Services Inc., and ScotiaMcLeod®, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. Scotia Private Client Group is a registered business name of The Bank of Nova Scotia, The Bank of Nova Scotia Trust Company, ScotiaMcLeod Financial Services Inc., Scotia Asset Management L.P., and Scotia Capital Inc. in the jurisdictions in which they carry on business. Private banking services are provided by The Bank of Nova Scotia.  For more information, please visit www.scotiaprivateclientgroup.com.


SOURCE Scotiabank

For further information:

Tara Wood, Narrative Advocacy Media, Office: 416-644-4133, Cell: 416-301-9760, tara.wood@narrative.ca

Shelley Thomas, Narrative Advocacy Media, Office: 416-922-2211 ext. 3364, shelley.thomas@narrative.ca


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