Several strategies available to defer paying your taxes

If you can’t avoid tax, the next best thing is to defer it.  There are a few different strategies that are available to take advantage of tax deferral, and it’s often  by correcting the structure of your investments.

Some examples:

Fixed Income

If you have loaned your money to a financial institution, company, or government you have likely purchased some form of fixed income product, such as a term deposit, GIC or  bond.  This category of investment is commonly referred to as fixed income and typically pays interest income.  The only way to defer tax on fixed income is to hold these types of investments within your registered accounts.  By registered accounts we are referring to RRSP, RRIF, LRSP, RESP, and RDSPs.


Some equities pay regular dividends, often referred to as “blue-chip.”  Not all companies pay dividends.  Growth companies may or may not be profitable yet.  Profitable growth companies may choose to retain earnings for further expansion.  If a company does not pay a dividend then shareholder profits would be derived solely from appreciation in the price of the stock.  Holding growth stocks longer term in a non-registered account is one way to defer tax.

Unrealized Gains

One of the biggest benefits to Canadians is that non-registered investment gains are not taxed until the investment is sold.  Let’s use Charles Young who purchased a growth stock for $14 per share eight years ago in a non-registered account.  Today the shares are worth $27 each.  The appreciation in the value of the stock will not be taxed until Charles sells the stock.  We encourage our clients to take advantage of this tax deferral benefit.  Mapping out a plan to hold certain positions longer term in a non-registered account may make tax sense.  Knowing these rules often allows investors to smooth their income out by controlling when they sell an investment, also known as “realizing.”  Take some time to map out a strategy to hold some of the longer-term positions within a non-registered account.

RRSP Contributions

Contributing to an RRSP is one of the most common ways people defer tax.  By making a contribution to an RRSP in the current year, you are effectively reducing your current tax liability.  In the future, when the money is withdrawn from the RRSP it will be subject to tax as regular income.  The single biggest benefit of an RRSP account is the tax deferral.


Registered Education Savings Plans are often set up for the benefit of a beneficiary, typically children or grandchildren, but subscribers can also set up an RESP for themselves.  There are no age limits for opening an RESP.

Adults, however, do not qualify for the Canada Education Savings Grant.  Let’s use John and Sarah Sims as an example.

The Sims chose to each make a one-time lump sum maximum contribution of $50,000.  Combined, the  couple can effectively defer investment income on an initial contribution of $100,000 for up to 35 years. This strategy involves a few additional steps that should be discussed with a financial advisor.

Early Contributions

Deferral is enhanced when contributions to your registered accounts are made early every calendar year.   If cash flow permits you should consider moving funds into your TFSA in January and into your RRSP as soon as you know your contribution limit.  Contributing early allows more of the income generated to be tax sheltered for a greater period of time.  Compounding growth on investment returns is enhanced through early contributions.


The TFSA is one of the few situations where tax is completely avoided on investment income.  All income is tax sheltered and withdrawals in the future are not taxed.  Anyone interested in deferring investment income should maximize the TFSA contribution each year.

Principal Residence

Building up equity through investing in your principal residence also provides similar benefits to a TFSA.  Gains on your principal residence are generally not taxed at all (note:  losses are also not able to be claimed).  If you purchased a home for $200,000 ten years ago, it may be worth $600,000 today.  The appreciation of $400,000 is not taxable in most cases.

What if a person buys a home today for $600,000 but the value declines to $550,000 in two years time.  In this case, the $50,000 loss cannot be claimed.  All asset classes go through cycles; however, over the long term most people who have purchased a principal residence have benefited from tax-free growth.

Real Estate

Purchasing real estate not considered your principal residence may allow for tax deferral until the property is sold.  If you decide to own more then one home you should speak with your accountant.  Prior to purchasing real estate outside of your principal residence you should understand the risks (especially if debt is assumed) and tax ramifications of all decisions.

In most cases tax cannot be avoided.  However, utilizing strategies to defer tax often provides an ability to enhance your overall net worth.