Taxable Investment Income

In this article, we will demonstrate how to view and make adjustments to the taxable investment income generated from non-registered Financial Assets.

You can view the assumed investment income created by non-registered investments from the Taxable Income Details page on the Planning Pages.

As you adjust the asset allocation and Portfolio Settings, you can check back on the Taxable Income Details table to see whether the resulting investment income better aligns with your client's circumstances.

The asset allocation for non-registered Financial Assets helps determine the investment income generated. For example, suppose your asset allocation is 10% Cash, 30% Fixed Income and 60% Equity. In that case, the client will realize interest income from the 40% allocated to Cash and Fixed Income, and the remaining 60% allocated to Equity will create a customizable combination of Capital Gains, Canadian Dividends, and Foreign Dividends. The Equity Return Allocation can be set on the Portfolio Settings page as shown below.

To open the Portfolio page, click Scenario Setup -> Settings -> Portfolio. 

Equity Returns are allocated with a default of 60% Capital Gains, 20% Canadian Dividends and 20% Foreign Dividends as shown above. You can adjust the values as needed to align the tax assumptions in Snap with your client's circumstances. For instance, if your client doesn't receive Foreign Dividends, you can set this to 0% and allocate the 20% to Capital Gains and/or Canadian Dividends.

The Annual Portfolio Turnover setting controls how much of the Equity allocation is bought and sold each year to trigger capital gain tax. The default is 5%, which means 5% of the deferred capital gain on the portfolio is realized and taxed each year. Additional capital gains will be realized if there are withdrawals made from the account, and they may be triggered by automatic portfolio rebalancing as described below.

The Portfolio Settings apply to all non-registered assets owned by the individual or corporation. If you want to apply the changes to all non-registered assets throughout the projection, you'll need to update each individual and corporation separately by selecting them in the top-left corner and changing the Portfolio Settings.

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To maintain your asset allocation over time (e.g., 10% Cash, 30% Fixed Income, 60% Equity), Snap performs automatic portfolio rebalancing each year. At the end of each year, the asset class that grew the most is partially sold and rebalanced into other asset classes to arrive at the specified asset allocation.

Therefore, even if you have entered a non-registered asset with 0% annual Portfolio Turnover under the Portfolio Settings, the automatic rebalancing may trigger Capital Gains.

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