Would you rather make six per cent or five per cent on your investments?
Believe it or not, some investment managers and self-directed investors would rather earn five per cent. The reason is that they don’t pay any attention to taxes.
By way of example, it is possible for some individuals to make a 10 per cent return on their investments, but they then have to pay five per cent in taxes, leaving just five per cent in their pocket. At the same time, someone can earn seven per cent, but only have to pay one per cent in taxes, leaving six per cent in their pocket. Many people focus only on the before tax-return when its the after tax return that really matters. Focusing on before-tax returns is the proverbial not seeing the forest for the trees.
All of this gets us to the issue of how to be a tax efficient investor.
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