Seniors scramble to manage tax impact of higher GIC returns

Higher rates for guaranteed investment certificates have attracted investors seeking steady income, but GIC returns in non-registered accounts are taxed at the marginal rate, which is higher than for capital gains and dividends.. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor , visit our

“Some of my clients who are seniors are shocked by their tax bills this year. They’re saying, ‘I can’t possibly have to pay that much.’ They just weren’t expecting it,” says Debbi-Jo Matias, a chartered professional accountant in Vancouver. “It was a tough tax season.” “They were tired of watching their investments go up and down, and looked to GICs for the ease and security,” Ms. Matias says.Ms. Matias says some seniors have more income in retirement than when they were working, including pensions, investment income, registered retirement savings plans , Canada Pension Plan and OAS benefits. Retired seniors also don’t have as many tax deferral opportunities as people in their working years, such as contributing to an RRSP.

“Some people are surprised to get a T3 because they didn’t sell any investments, but they might own a mutual fund, for example, that sold investments that, in turn, generated a capital gain,” he says. His rule of thumb for clients is that all long-term assets should be invested in the market, while short-term money should be invested in cash, whether it’s a GIC or a more liquid high-interest savings account.Mr. Heath notes that higher GIC rates may not last long, given expectations the Bank of Canada will start reducing interest rates, possibly starting as early as June.

Source: News Formal (newsformal.com)

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