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Graham Westmacott CFA

Portfolio Manager

Susan Daley CFA

Associate Portfolio Manager
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  • T519.880.0888
  • 1.877.517.0888
  • F519.880.9997
  • The Marsland Centre
  • 20 Erb St. W,
    Suite 506
  • Waterloo, Ontario N2L 1T2

The Taxation of Investment Returns

December 6, 2017 - 4 comments

When investing your money for the long-term, it is important to focus on things you can control. One of the items you can control is the amount of tax you pay on your investments. I outline how TFSA and RRSP accounts are taxed in their respective videos: What is a TFSA? and Rethinking Registered Retirement Savings Plans (RRSP’s). In today’s video I outline how investments are taxed personally, when you can no longer use these tax sheltered accounts. Investment returns are taxed based on the source of income. For a refresher on the sources of investment returns within a portfolio, check out my videos: Investing in Bonds: How Do I Make Money Buying Bonds? and Investing in Stocks: Earning a Return on Equities. In summary, interest and foreign dividends are taxed at your marginal tax rate, Canadian dividends are based on a gross-up and tax credit mechanism, and capital gains are taxed at half your marginal rate. Check out my video below to dive deeper into the mechanics of how this all works.

 

By: Susan Daley with 4 comments.
Comments
  22/01/2018 12:17:08 PM
Susan Daley
Hi Catherine,

You’re very welcome! It’s typically better maxing out your RRSP before using non-registered funds (assuming the funds are for retirement and you’ll be in a lower tax bracket when you’re retired than you are now/while working). If you think you’ll earn more in the future and expect you’ll be in a higher tax bracket and can make more use of the deduction, you can contribute to the RRSP now and delay that deduction for future tax years and get a higher tax refund, as outlined in this video: https://www.pwlcapital.com/en/Advisor/Waterloo/Graham-Westmacott/Blog/Graham-Westmacott/June-2017/RRSP-Deduction-Limit-vs-Contribution-Room. In essence, paying no tax is better than paying low tax. At some point, if you max out your registered accounts and need to start investing in a non-registered account, you can rebalance your portfolio and sell the Canadian stocks in your RRSP, buy them in your non-registered and use the cash in your RRSP to buy other asset classes.

Susan
 
  08/01/2018 3:34:00 AM
catherine
thank you for sharing this! if you are in a lower tax bracket (28.2% in BC) would you still recommend maxing out your registered rrsp account before doing non-registered investments? or let my contribution room accrue first and put better tax-efficient investment vehicles next time.
The extra savings I am planning to invest in 2018 is to buy canadian stocks, which are taxed favorably in non reg accounts.
 
  05/01/2018 3:26:03 PM
Susan Daley
Adam – You are very welcome. Glad you enjoyed the post!
 
  19/12/2017 12:07:11 PM
Adam Okhai
Very useful ; glad I saw this. Thank you for the post. Best wishes
 



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