A SIMPLE GUIDE TO INVESTMENTS AND TAXES

Most investors know what their portfolio earns. Fewer know what it keeps — after tax. This guide explains, in plain language, how investment returns are taxed in Canada, and a few straightforward ideas that can make a real difference to your long-term wealth.

01. WHY TAX IS WORTH THINKING ABOUT

There’s an opportunity most investors may not have fully explored

For investors in higher income brackets, the tax on investment returns can sometimes be one of the largest costs in a portfolio comparable to, or even larger than, management fees and fund expenses combined.

Gross returns vs. Net returns — what’s the difference?

The opportunity

Here’s what makes this genuinely interesting: improving your after-tax return may not necessarily require taking on more investment risk, switching strategies, or making dramatic portfolio changes. It may simply involve being more intentional about how your investments are structured - the type of income they generate, where they’re held, and which investment structure is used.

^{*same 8% earned - varies by income type. For illustrative purposes only. Actual performance results may be significantly different based on your investments. For general educational purposes only. Not tax advice. Individual circumstances vary. Please consult a qualified professional.}

02. NOT ALL INVESTMENT RETURNS ARE TAXED THE SAME WAY

How you earn a return can matter as much as how much you earn

In Canada, different types of investment income are taxed at different rates. This may be one of the most important and most underappreciated aspects of building long-term wealth. Understanding the spectrum is the starting point for any tax-smart conversation with your advisor.

The main types of investment income in Canada

^{For illustrative purposes only. Rates are approximate, based on top Ontario marginal rates as of 2026. Individual circumstances may vary. Please consult a qualified tax professional.}

What this means in practice

Two portfolios with the same gross return can produce very different after-tax results - simply because
one generates more capital gains and the other generates more interest income.

^{THE COMPOUNDING EFFECT}

Tax saved today keeps working for you

Capital that isn’t paid in tax stays invested uninterruptedly and continues to compound in your portfolio.
Over a long period, this effect can be one of the most powerful levers for investors.

^{For general educational purposes only. Not tax advice. Individual circumstances vary. Please consult a qualified professional.}

^{INVESTMENTS & TAXES XPLAINED}

^{WHAT HAPPENS TO $10 MILLION OF INVESTMENT GAINS WHEN TAXES ERODE COMPOUNDING?}

Two Canadians that invested $1 million and earned the same 8% annualized returns over 30 years could end up with vastly different results depending on how their investments are taxed. Despite identical gross returns, their net returns after taxes vary significantly depending on the type of income.

^{Source: Source: Picton Mahoney Asset Management. For illustrative purposes only. Based on tax rates for an Ontario resident in the highest marginal tax bracket in 2026. This content is for informational purposes only and is not intended to provide specific financial, investment, tax, legal or accounting advice specific to any person, and should not be relied upon in that regard. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. Note: Effective tax rate on capital gains has accounted for the 50% inclusion for ta xable incomee.}

03. WHERE YOU HOLD YOUR INVESTMENTS CAN MAKE A DIFFERENCE

Sometimes it’s not what you own, but also where you hold it

If you hold investments across different account types such as a TFSA, RRSP, and a non-registered
account, the account you put each investment in can affect how much tax you pay on the returns.

^{For general educational purposes only. Not tax advice. Individual circumstances vary. Please consult a qualified professional.}

04. WHY TO LOOK FOR IN A TAX-SMART INVESTMENT STRATEGY

A few good questions can help you understand what you’re really getting

Is this strategy tax-efficient, tax-aware, or both?

A tax-aware strategy actively manages for tax outcomes and may be personalized to your situation.
A tax-efficient strategy naturally produces lower tax drag due to how it’s structured but may not
actively optimise for your specific circumstances. The best strategies can do both.

What investment structure does it use, and what does that mean for my taxes?

The legal structure of an investment matters. The four main options in Canada include mutual fund trusts,
mutual fund corporations, limited partnerships, and separately managed accounts. They handle gains,
losses, and income differently. Some allow tax benefits to flow through to you personally; others keep
them inside the fund.

What tax assets does the strategy generate? Can I use them?

Some strategies are able to generate tax losses that can be used to offset gains on your personal tax
return. Others keep those losses locked inside the fund. Understanding the difference with your advisor
and tax professional can help you get the most from every strategy you hold.

Is the strategy long-only or long-short? And why does that matter?

A long-only strategy can only generate tax losses when the market falls. A long-short strategy holds both
long and short positions, which creates more consistent opportunities to harvest losses across different
market environments. This can help sustain that advantage over a longer period of time.

^{For general educational purposes only. Not tax advice. Individual circumstances vary. Please consult a qualified professional.}

^{TALK TO YOUR ADVISOR}

Is your portfolio as tax-smart as it could be?