Tax-Free Investment Strategies
It requires hard work, discipline and smart investments—so it’s only wise to make sure you’re taking advantage of the tax savings available to you as an investor. We’ve collaborated with Fidelity to share a few tax-friendly financial solutions that can help you minimize your tax and maximize your potential savings.
Scroll on to discover a few tax-efficient accounts and simple strategies that aim to help you pay less tax, so you can keep more of your hard-earned money while continuing to grow your wealth.
TFSA
What is it?
A Tax-Free Savings Account (TFSA) is a registered account that allows your contributions, earnings and capital gains to grow tax free. Withdrawals from your TFSA are also tax free. You can use a TFSA
to hold all kinds of investments, including mutual funds, exchange-traded funds, stocks, and bonds.
Your investments inside a TFSA grow tax-free, meaning you don’t have to pay taxes on earnings and growth inside the account. And if you need to tap into your savings, withdrawals can be made at any time—totally tax-free.
What are the
tax-free benefits?
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The fine print
Unlike with a Registered Retirement Savings Plan (RRSP), TFSA contributions are not deductible for income tax purposes.
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An investment advisor can help you decide what types of investments to hold in your TFSA, depending on your personal goals and risk tolerance.
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There is a maximum amount you can contribute to your TFSA in a year. If you don’t use your full annual contribution room, you can carry it forward to use in future years.
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When you take money out of your TFSA, the amount you withdraw gets added to your contribution room for the following year. This means you can recontribute the amount you've withdrawn in the new year.
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You can have multiple TFSA accounts—you just have to make sure that the combined amounts don’t exceed your total contribution limit to avoid a tax penalty.
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You can hold your FHSA without making a qualified withdrawal for up to 15 years or the year you turn 71 (whichever comes sooner)—at which point you can elect to transfer the balance to your RRSP (while continuing to defer tax) or make a taxable withdrawal.
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You’ll have to check off a few boxes in order to qualify for
a tax-free withdrawal from your FHSA—like having a written agreement to buy or build a home in Canada, and a plan to live there within a year of buying or building it.
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If you have a Registered Retirement Savings Plan (RRSP), you can make a withdrawal from both your RRSP under the Home Buyers’ Plan (HBP) and your FHSA for the same home purchase. But unlike your HBP withdrawal – which needs to be paid back within 15 years – you won’t need to repay the money you take out from your FHSA.
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The FHSA has a lifetime contribution limit of $40,000 and
an annual contribution limit of $8,000—but if you don’t max out your yearly amount, you can carry forward up to $8,000 cumulative to use in a later year.
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The fine print
What are the
tax-free benefits?
When you make a contribution to your FHSA, you’re able to claim these amounts as deductions, reducing your taxable income for the year. In other words? You pay less tax…
But that’s not all—any income and capital gains earned inside your FHSA won't be counted as part of your annual income for tax purposes. That means your money can keep growing, and compounding, on a tax-free basis. Meanwhile, withdrawals for a qualified home purchase are also tax-free.
FHSA
What is it?
The First Home Savings Account (FHSA) is a new registered account that aims to help Canadians save towards their first home purchase. Aspiring homeowners can use their FHSA to hold mutual funds, exchange-traded funds and other types
of investments. With the potential to grow
those investments tax-free over time, an FHSA
is a great way to save up for a down payment.
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Fidelity All-in-One ETFs include a small strategic exposure to cryptocurrency.
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For those with a longer time horizon and an appetite for more risk, Fidelity All-in-One Growth ETF might be for you. And if long-term growth is your ultimate endgame, you can consider Fidelity All-in-One Equity ETF.
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If you’re looking for lower-risk and potentially less volatility, but still want to enjoy a little potential for long-term growth, Fidelity All-in-One Conservative ETF may be a good option to consider. If you’re willing to take on a bit more risk, Fidelity All-in-One Balanced ETF may also be a good choice.
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With All-in-One ETFs, one size doesn’t fit all. You can choose the right ETF that works for your individual goals, time horizon and risk tolerance.
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The fine print
How can you use it to maximize your tax-free benefits?
When you hold an All-in-One ETF in your TFSA or FHSA,
the capital you invest can grow tax-free. Meanwhile, you
can also access returns without worrying about paying
tax on qualified withdrawals...
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All-in-One ETFs
What are they?
Fidelity All-in-One ETFs are an easy way for you to build a complete and diverse portfolio across different regions, market sizes and styles. With an easy-to-manage approach to portfolio management, ETFs may be a great choice if you’re looking for a simple yet comprehensive investment solution.
© 2023 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC.
Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Fidelity’s All-in-One ETFs pay indirect management fees through their investments in underlying Fidelity ETFs that pay management fees and incur trading expenses (in addition to the indirect management fee, the Fidelity ETFs will also pay indirectly the operating expenses of the underlying Fidelity ETFs). Please read the ETF’s prospectus, which contains detailed investment information, before investing. ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.
The management fees directly payable by Fidelity All-in-One ETFs are nil. The ETFs invest in underlying Fidelity ETFs that charge a direct management fee, and as a result, pay an indirect management fee. Based on the management fees and the anticipated weightings of the underlying Fidelity ETFs, it is expected that the effective, indirect management fee for Fidelity All-in-One Conservative ETF will be approximately 0.34%, Fidelity All-in-One Balanced ETF 0.35%, Fidelity All-in-One Growth ETF 0.37%, and Fidelity All-in-One Equity ETF 0.38%. Actual indirect management fees will be reflected in the management expense ratio in addition to applicable taxes, fixed administration fees, trailing commissions, portfolio transaction costs and expenses, as applicable, of each ETF/Fund, posted semi-annually.
Each of the Fidelity All-in-One ETFs has a neutral mix, which includes a small allocation to Fidelity Advantage Bitcoin ETF™ ranging between 1% and 3%. If each portfolio deviates from its neutral mix by greater than 5% between annual rebalances, it will also be rebalanced. Such rebalancing activity may not occur immediately upon crossing that threshold but will occur shortly thereafter.
The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
Information about the Tax-Free First Home Savings Account is based on information available from the Government of Canada as at April 1, 2023, and may be subject to change. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
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Growing your savings doesn’t happen overnight.
Looking for an investment to pair with your tax-free accounts for further tax savings? Read on…
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