How you receive income is key tax issue
 In
an earlier section, we looked at some of the factors you should
consider in evaluating an investment, such as risk, potential
for appreciation, liquidity, time horizon, and of course,
the potential of the investment to provide us with income.
The ultimate goal for every investment is to eventually provide
us with income – either interest income, dividend income
or capital gains.
But some forms of income are better than others – at
least from a tax point of view. Some types of income receive
favourable tax treatment.
This means when you’re building your portfolio and
considering an investment, you have to consider the after-tax
returns. And you have to evaluate it in light of your marginal
tax rate and any other relevant tax issues.
Here are some figures illustrating the different tax treatments.
If you’re in the top tax bracket, the numbers below
show how much you would get to keep of $1,000 in investment
income:
- If dividends from Canadian corporations
- $683
- If capital gains - $768
- If interest or foreign income - $535
This means if you are in a top marginal tax rate, $100 of
dividend income is the same after tax to about $130 in interest
income. This can have an enormous impact on your planning
and how you want to receive your income.
Part of your investment planning should be to determine how
much you will receive of these three forms of income and what
the tax implications might be.
You have to weigh the pros and cons and you have to consider
your own situation and your tolerance for risk. For example,
although dividend income is taxed less, it is generally not
as secure and reliable as interest income.
Important: This brief section
has merely scratched the surface of the complex world of
tax
efficient investing. To make the most of your situation and
to take advantage of the opportunities that may be available
to reduce your taxes and keep more of your money, you are
strongly advised to seek professional assistance. If you’re
not sure who to call, why not click
here to find the RBC financial planning professional closest
to you.
Although they may not be able to provide you with tax advice,
they can help put you in touch with a tax expert who can.
Important information about our financial planning services can be found at the bottom of our
homepage.
|
