Garth would not recommend avoiding growth funds altogether, especially for RRSP investors. These days there is another, more tangible reason to own growth investments beyond their long-term potential. In this year s budget, the government changed the capital gains tax mechanism. It s the same rate, and it is still taxed as income, but the difference is that only two thirds of it is taxable. For someone in the top tax bracket, this means a tax rate of 31 per cent on capital gains, making them more tax-efficient than dividends or income funds.
Growth is now a better bargain than income, taxation-wise.
This refers to the ability to carry over unused contributions into the following years. The government will not keep this option open forever. In a budget some time soon, they will eliminate this benefit. The best way to catch up is to make monthly contributions, Garth maintains. In the years to come, you will be substantially ahead.