Canadian Investing Taxes - Dividends, Interest, and Capital Gains

Are you curious about how investing taxes are calculated on dividends, interest, and capital gains across the various accounts in your portfolio? 

I am by no means a tax expert, but I do have enough knowledge to give general guidelines on how you can figure out your own investing taxes and prioritize your subsequent investments.

Investing Taxes in an RRSP

Let’s start with RRSPs. As you probably know, RRSP contributions and investment growth are taxable only upon withdrawal. 

At that point, RRSP withdrawals are taxed as income at your marginal tax rate at the time.  This means that it’s as if you earned the money at a job.

That’s the strategy behind RRSP’s: contribute, let it grow tax-free, and withdraw when you are in a lower tax bracket (hopefully).

The reason that the RRSP works so well as an investment vehicle, is that when you are retired, you will typically be in the lower tax brackets (unless you have a very large portfolio and/or a generous pension). Because of this, you’re able to invest money now before it is taxed while you are at a high tax bracket, and withdraw it when you are in the lowest tax bracket (i.e. retired).

Investing Taxes in a TFSA

The main benefit of the TFSA is that you don’t have to worry about paying investing taxes on anything that you hold within it. 

When you contribute to a TFSA, you are doing so with after-tax dollars, meaning that taxes have already been paid by you, on those amounts. 

In other words, even if your investments quadrupled in value within your TFSA, you still wouldn’t pay any tax on those gains. You also wouldn’t pay any tax on the dividend or interest income that you may have earned within your TFSA. 

Because of this tax efficiency, a common practice when it comes to the TFSA, is to use it for the investments that you think will grow the most, since in the future you’ll be able to take those investments and gains out tax-free. 

Investing Taxes in Non-Registered Accounts (Taxable Accounts)

Now on to Non-registered accounts.  This is where things can get a bit tricky. There are 3 types of taxes that you need to consider.

  1. Capital gains tax (preferred)
  2. Dividend tax from Canadian corporations (preferred)
  3. Interest tax and dividends from non-Canadian corporations

Investing Tax on Capital Gains

When you profit from selling a stock in a non-registered account, you will be subject to capital gains tax. What are capital gains? A capital gain is the difference between the selling price and buying price of a stock – less the commission. 

For example, if you sold a stock for $1,000 (inc selling fee) and paid $800 (inc buying fee), you would have a capital gain of $200. 

Capital gains tax is subject to a 50% inclusion rate. This means that 50% of your profit will be included as income. 

So in our above example, $100 would be added to your income and taxed at your marginal rate. Or another way to look at it is that any profits from a stock sale in a non-registered account are taxed at HALF your normal marginal rate.

Some Canadian investing tax experts argue that any part of your non-registered investment portfolio that produces interest income such as bonds or GICs should be placed inside a TFSA or RRSP in order to protect that income – due to the fact that it is taxed at 100% of your marginal tax rate.

However: I’d argue that with interest rates on fixed income so low, you’re better off protecting the much larger returns that your equities *should* produce long term.  The idea is, should you be more worried about protecting your 1% return on fixed income (even if it gets taxed at 100% of your marginal rate) or the 2-3% dividend returns + 4-6% capital gains that your equities are likely to realize over the long term (even though they do get preferential tax treatment)?  To me the math is pretty easy on that one.  Once fixed income starts edging into the 3-4% territory, the math starts to get a lot closer in terms of deciding what to keep under the RRSP/TFSA tax-sheltered umbrella, and what to leave outside in the taxable rain.

One additional advantage of keeping your capital-appreciating stocks outside of an RRSP is because you can claim your losses against your gains to reduce your taxes payable. Whereas within an RRSP, losses cannot be claimed. 

For example:

If in 2020 you sold stock for a $4,000 non-reg portfolio profit and $1,000 in losses, your total profit is now $3,000. To figure out your taxes payable, it would be: $3,000 x 0.50 = $1,500. This $1,500 would be added to your taxable income for that year and taxed at your marginal rate.

This is why you’ll read some tax strategies to sell your losing stocks at the end of the year. The losing amount will be deducted from your total winning amount and reduce your overall taxes. 

What if you have a losing stock(s) for the year, but you believe it’s a long term winner? You’re probably thinking to sell it before the end of the year and purchase it again. Not so fast, you have to make sure you don’t violate the superficial loss rule.

What is the Superficial Loss Rule?

According to the Government of Canada’s explanation, This rule applies where a person or affiliated person acquires or had the right to acquire the same or identical property within 30 days after the disposition or 30 days before the disposition of the property in question. The disposition could have been made to anyone. In these cases, the loss on the disposition is denied and the amount of the loss is added to the cost of the substituted property.

In layman’s terms, it simply means that if you sell a stock at a loss, you can’t repurchase the shares back again within 30 days and claim the loss against your gains. However, if you do repurchase the same shares back within 30 days and you profit from it in the future, you can deduct the initial loss against your gain of THAT stock.

For example:

  • Purchase 10 ABC stock for a total cost of $1000
  • Sell 10 ABC stock for: $800
  • Loss: $200
  • Repurchase 10 ABC stock within 30 days for: $850
  • Sell 10 ABC stock in the future for $1200:
  • Profit: $1200-$850-200 (initial loss) = $150
  • Taxable Amount: $75 ($150 *50%)

As a side note, you should consider the superficial loss rule if you are attempting the Smith Manoeuvre (SM) or want to hold Canadian dividend stocks outside of your TFSA and/or RRSP. The SM suggests to sell your non-reg stock to pay down your house, then REPURCHASE the stocks. If you sell stock at a loss, you should wait 30 days before repurchasing. Otherwise, the loss will be omitted.

Do your taxes with our favourite DIY tax software!

At MDJ, we constantly review and compare financial services. Our SimpleTax review is highly positive and we deem it as the #1 tax preparation software in Canada.

 

Investing Taxes on Dividends and the Dividend Tax Credit

What is a dividend?

Dividends are payments/distributions from public corporations to their shareholders. Dividend paying companies typically pay their distributions on a quarterly basis (every 3 months).  You as an investor should see a nice little deposit in your online brokerage account when these dividends get paid out.

Why are dividends tax efficient to shareholders?

Dividends are tax efficient for shareholders because distributions are paid out with after-tax corporate dollars. Meaning that the company pays out the dividend distributions AFTER it has paid all of its taxes to the government. 

This is the reason why when you receive a dividend payment from a Canadian public company in a taxable account (i.e. a non-registered account), you are eligible for the enhanced dividend tax credit.

How do I calculate the dividend tax and dividend tax credit?

With the enhanced dividend tax credit, gross-up any dividends that you receive (from a Canadian public corp) for the year by multiplying it by 38% (2020).

  • Ex: $1000 dividends received in 2020 * 38% = $1,380

You add this amount to your income for the year. You take this total amount and figure out your marginal tax rate.

  • Ex. $55k + $1,380 = $56,380

Multiply your grossed-up amount by your marginal tax rate to figure out total taxes owed.

  • $1,380 * 29.65% = $409.17 (for this example we’re using the combined federal and Ontario tax rate/bracket which is 29.65% for 2020)

Calculate Federal Tax Credit and Provincial Tax Credit

  • $1,380 * 15.02% (Federal rate) = $207.28
  • $1,380 * 10% (ON) = $138
  • Total tax payable on $1,000 worth of dividends: $409.17 – $207.28 – $138 = $63.89.
  • Or, you can go on the web and calculate it yourself.

How about dividends from foreign companies?

Dividends received from foreign companies do NOT qualify for the dividend tax credit and are 100% taxable. For all intents and purposes, you can treat foreign dividend income the same as interest income or income you earned at a job.

Investing Tax on Interest Income (In a Taxable Account)

What is interest income?

Interest income is interest received from GICs, high-interest savings accounts, bonds, and private loans.

How is interest taxed in a non-registered (taxable) account?

Interest income is 100% taxable. This means that if you earn $1,000 in interest for the year, $1,000 is added to your income and taxed at your marginal rate. (40% tax rate = $400 to be paid in taxes – OUCH!)

In other words, it’s just like you earned the money at a job.

How to Calculate US Capital Gains Tax in a Non-Registered Account

Another common question is how to calculate capital gains tax on US traded stocks within a Canadian non-registered account (in USD).  

While the calculations are very similar to trading Canadian stocks, the difference is that the currency exchange needs to be accounted for.

Basically, the buy price and sell price need to be converted to Canadian dollars first prior to calculating capital gains.  

Once capital gains after foreign exchange are calculated, the same 50% inclusion rate is used. 

To figure out the exchange rate on the day of the trade, the Bank of Canada website has all the forex history you need.

Here’s an example:

  • Stock:  XYZ on NYSE
  • Buy Price USD: $10 x 100 shares = $1,000
  • Buy CAD/USD Exchange: 1.41 (on day of buy trade)
  • Buy CAD:  $1,410
  • Sell Price USD: $15 x 100 shares = $1,500
  • Sell CAD/USD: 1.43 (on day of sell trade)
  • Sell CAD: $2,145
  • Capital Gain:  $730 minus commissions
  • Capital Gains Tax: ($730 minus commissions) x 50% x marginal tax rate

In the above example, if it was simply a stock on the TSX, then the capital gain would be $500 (minus commissions). However, since there may be a loss or gain due to the value and volatility of the USD currency itself, it can work in favour or against the investor.

Another method my accountant told me about is to use an average USD/CAD exchange for all the transactions to avoid looking up the exchange rate on the day of the trade for every transaction. While this may simplify things, you’ll need to work through the numbers yourself to see which option reduces capital gains the most. For a frequent trader, I can see how using a single annual average forex rate can be advantageous.

Personally, to keep things simple, I hold US securities in registered accounts. As per my article on portfolio allocation, US dividends stocks are kept in an RRSP to avoid the withholding tax on the dividends and the occasional USD trade may be made within my TFSA.

Reduce your Investing Taxes by Claiming your Capital Loss

What is a capital loss?

It’s simply where you sell a stock in your non-registered portfolio for a loss.  

From here, it just seems like a loss, but there is a bright side. Unlike investments within your RRSP (or TFSA), capital losses within a non-registered portfolio can be claimed against your capital gains for the year (or previous years).

Here are some important facts about capital losses:

  1. Capital losses can only be claimed on investments within taxable investment accounts (also known as non-registered accounts).
  2. Only 50% of capital losses can be claimed.
  3. Capital losses can be claimed against capital gains in the current year, up to 3 previous years or carried forward indefinitely. However, it can be claimed against income on the year of the taxpayer’s death (comforting hey?).
  4. Tax loss selling must be made before December 24 of that year as it takes 3 days to settle the trade.

How Tax Loss Selling Works – An Example

Say for example Jim (@ 40% marginal tax rate) had $10,000 in capital gains in 2020, but also $4,000 in capital losses.  What is the resulting tax payable?

There are two ways to calculate this, both of which turn out with the same result:

  1. $10,000 – $4,000 = $6,000 x 50% x 40% = $1,200 tax payable
  2. $10,000 x 50% X 40% = $2,000 capital gains tax; $4,000 X 50% X 40% = $800 capital loss claim; result = $1,200 tax payable.

The last question is why would you sell for a tax loss? The main reason for this, is that sometimes at the end of the year, you realize that you’ve made some bad stock picks that have a low probability of recovering. Why not dump the losers, claim the tax deduction and move on? 

What about tax-loss selling or tax-loss harvesting for index investors?

Keep in mind that tax-loss selling primarily applies to investors that pick individual stocks within a taxable account. 

It doesn’t apply as much to index investors since as an index investor, you are buying and holding the entire index long-term. You don’t have any “losers” per se, since you aren’t actually trying to pick the winning stocks and avoid the losing stocks (i.e. as an index investor, you are just buying all the winners and the losers). 

If an index experienced losses in the year, then you also have to be careful about the superficial loss rule mentioned earlier. 

For example, if the S&P/TSX index (the main Canadian index) fell in a given year, you can’t just sell that ETF to claim a capital loss, and then buy it again immediately. 

It also looks highly suspicious to the CRA if you sell an index from one provider (ex. Vanguard) and then buy the same index ETF through another provider like iShares. In that case, you are still technically re-buying the same index, and so I seriously doubt that the CRA would rule in your favour as it clearly appears that you are doing this just to minimize taxes.

What you can do (and the CRA has not spoken out against this to the best of my knowledge) is buy a similar ETF to the one that you just sold – then 30 days later, sell that ETF and buy the one that you really want (and had originally).  There is no reason to over-complicate your life with stuff like this unless your overall portfolio is large enough that the loss that you experienced represents a decent tax write off.  If you are sticking to investing only in your RRSP and/or TFSA, then obviously this strategy doesn’t apply to you.  

Here’s how it would look in a possible 2020 scenario:

  • I start 2020 owning 1,000 shares of VCN at $34.00 per share.
  • December 20th rolls around and VCN is now trading at $26.00 per share.  (No, this is not a prediction!)
  • I have lost $8.00-worth of value for each share that I own – totalling an $8,000 loss – which can be used to offset any gains.
  • I login to my Questrade account to sell my shares, and “book” the loss.
  • I take the $26,000 that I received in my discount brokerage account when I sold the 1,000 shares, and I use it to purchase XIC (which is a similar holding, but actually invests in a few dozen less small-cap stocks).
  • I could also just sell it and take the risk that the market is going to go anywhere for 30 days, then re-buy my original VCN shares back again.
  • I then sell my XIC shares 30 days later, and buy my VCN shares back.

To summarize, tax-loss selling is a strategy that can be great for investors who at one point picked an individual stock(s) or ETF that they thought would do well, yet after some time realized that they made a mistake, and would now like to sell it and move on.  It’s also worth mentioning that for investors that want to keep their life super-simple, our Wealthsimple Review explains how Canada’s #1 robo advisor will actually complete this “tax loss harvesting” on your behalf once you have $100,000 in assets with the company.

However, the strategy can also be used effectively by index investors who have a large enough portfolio and a large enough loss in any given tax year to justify “booking” or “making real” a paper loss in their non-registered account in order to reduce their taxes owing.  Our all in one ETFs article shows some excellent options for folks that like the idea of claiming a tax loss in their non-registered account, but also value overall simplicity.  That said, remember to read the fine print when booking a transaction like this.

This guide was originally written by Frugal Trader, and updated for 2020 by Kornel Szrejber and Kyle Prevost.

Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

130 Comments
Oldest
Newest
Inline Feedbacks
View all comments

Thanks for the explanation. I have never fully understood how capital gains worked until just now. Look forward to the dividend and interest income tax entries :)

“The 50% inclusion rate is a reason why most financial gurus suggest that you keep investments for the purposes of capital appreciation/gain outside of your RRSP.”

Are you suggesting that people should only use RRSP room for interest paying bonds, and securities that are held for their ability to pay dividends? It seems to limit the amount of RRSP room one should use since the majority of people’s portfolios are usually in equities that they hope to appreciate in value. What is your approach to the distribution of asset classes between your registered and non-registered accounts?

Thanks for the reply,

I see what you are saying. Perhaps we can say that “in general” RRSPs are a good place for interest paying bonds and foreign securities. And non-registered accounts are better for Canadian securities.

But how about appreciation of foreign securities? Are they taxed at 100% or 50%? If capital gains on foreign investments are also taxed at 50% it may still make sense to keep them in a non-registered account as well.

Steve

excellent article FT! thanks for the related comments on my site

[…] Recommended Books Home > General, Tax Minimization > How Investing Taxes Work (Part 2 – Dividends and Interest) How Investing Taxes Work (Part 1 – Capital Gains) […]

FT,

Thanks for this great article. Could you explain how profits from stock options are taxed? Is there a different tax-treatment-wise for stock options granted by employer from options purchased on the open market? I am concerned that the latter may be taxed as income as opposed to capital gain since they tend to be short-term in nature.

[…] February FrugalTrader05:51 am1 Comment A little while ago, I wrote about investing taxes in Canada (Part 1, Part 2). These articles drew quite a few questions from my readers which actually got me thinking quite a bit. […]

Was wondering when one becomes a day trader or just an investor, when it comes to claiming capital gains or income. I have moved from a few trades a year to more than 100 and someone mentioned to me that I had to report it as income,instead of capital gains.

[…] As a starting point, if you are Canadian, read the Million Journey’s excellent summary on How Investing Taxes Work (I suspect the American tax system works in a similar manner but please seek your own accounting advice). The quick and dirty of the post being that, generally speaking, the most tax friendly to least tax friendly distributions are (in order): […]

[…] As a starting point, I would read the Million Dollar Journey’s posts on this subject. It is an extremely good summary on taxes (please note it only applies to Canadians though). The one thing to understand about the Canadian tax system is that it punishes the generation of passive income relative to active income in a corporation. Active income is income you make from your job or business. Passive income is made from investing, rental income and royalties. Outside of the corporation, the tax treatment is neutral in the respect that, removing the dividend tax credit and capital gains from the equation, you are generally taxed at your personal income tax rate. […]

[…] If you were to invest $10,000, and sell 2 years later for $10,000, your profit would be considered $10,000. So to calculate your capital gains, with a 40% tax rate, would be $5000 x 40% = $2000 tax payable. Even in the scenario where the shares don’t change in price, you will receive a $2000 gain ($4000 tax return – $2000 tax payable). […]

[…] Confused about all the tax talk? Stay tuned, i’ll post later about how Canadian taxes work. […]

[…] How Investing Taxes Work (Part 1 – Capital Gains) | Million Dollar in a non-registered account, you will be subject to capital gains (CG) tax . What are capital gains? Capital gain The one thing to understand about the Canadian tax system is that it punishes the […]

[…] interest income is taxed 100% at your marginal rate.  For more info read my article about how Canadian investment taxation works.  So if your marginal rate is 40%, then 40% of your interest income/profit will be taken by […]

Hi!This is my first entry.I have in the process of purchasing a condo in Panama.Our principle residence will remain in Canada so I was wondering what capital gains would be in place if I sold this condo and if I should register it under a business name.

Thanks very much for the clear explanation.
I wonder if you could answer me three questions:

1, do i need to report the realized short-term profit (but still kept in the non-reg account) even though the amount is NOT cashed out?
for example, in year 2005, an initial investment is $1000, and the short-term realized profit is $200, no loss. However, i did not cash out any. Am i required to report the $200 profit?

2, is that true to say the taxes will apply only if i cash out any money from the non-reg account??

3, if one day down the road, i closed my non-reg account and cash out everything, will the taxes only apply towards the NET profit or entire cashed out amount?

thanks very much

If you sold the security/stock/etf then you did “cash out” it doesn’t matter if the money is still just sitting in the account.

thanks very much for the reply.
i wonder what i should do if i did not report previous years’ capital gains due to the misinformation. Will there a penalty? what shall i do?

thanks very much

Tax Carnival #24: Return to Tax Standard Time…

Did y’all enjoy your additional hour of sleep this weekend? I didn’t get my full 60 minutes. I got up Sunday just before 6 a.m. Central, now Standard, Time to watch the International Space Station cruise across the Central Texas early morning sky. It…

I have built a business (Canadian Corp) and wish to sell. I will have huge capital gains even if I sell shares and not assets. Very good Cash Flow business, so perfect for another company to amalgomate. Still Capital TAx will be huge. I have 2 children and wife. I am thinkihg about gifting to children. Apon my death my younger wife will get my asset roll over tax free I think. I also own another small company (Canadian Corporate) also, and would like to buy or invest in that to keep down the Capital Tax. I have worked my butt off for 38 years and now hate to pay so much after a life time of huge tax each year.(and corporate tax too each year)
Any comments?

Paul,
I have no idea how old this comment is or if this will still be relevant, but there are some things. First is that you can hopefully qualify for the Lifetime Capital Gains Exemption which is $824,176 in 2016. Meaning you’ll avoid paying tax on all of that profit when you sell. However, this is where you need to make sure you discuss it with a qualified accountant as your business has to fit specific criteria to qualify.
With regard to your sons, you may want to discuss doing an estate freeze.
I’m not an expert in structuring succession plans by any means, but you definitely need to sit down with some qualified professionals to discuss your options.
I’m almost positive you’ll get the LCGD of $800+K though.

[…] If the borrower defaults on their loan, not all is lost as you can claim the default as a capital loss. […]

Hi FT,
I am an american citizen and have invested in the Canadian real estate market. I am selling my “assignment” on a condo currently being constructed. As a foreign invester, how would I be tax? The same as a canadian citizen? I greatly appreciate your inpu,
Ken Thomas
Palm Springs, California US

[…] How Capital Gains Tax Works […]

Does anyone know how selling covered call options are taxed? It is just considered capital gains, or can you just use the value to lower the adjsuted cost base of the stock that you have and pay the tax when you sell the actual stock?

Great question, Jared.

I also wonder about this question, and I would like to know if using covered calls would nullify the tax benefits of a “Smith Maneouvre” strategy (i.e. if i borrow money to invest in a stock AND writing covered calls on them, is my debt’s interest still tax deductible?)

My wife and I are in the process of purchasing property in Panama.We plan to live in Canada for 6 MTHS and there for 6 MTHS.How would capital gains work if we sold that property or bought another as an investment and sold it?Should we register it in our names or form a company for this purchase.Cheers! Hope someone can help me!Chris

In the year 2007 i sold “ABC” stocks 3 times. I have been buying this stock for 6 or 7 years. How does one know what profit (gain) was made ? Saying it is the difference between what you paid for it and what you sold it for is AN OVERSIMPLIFICATION ?? I can’t be the only investor who has this problem
Thanks,
F Fownes

You can do the capital gains tracking in a stock tracker or capital gains software tracker on your computer. “Stox” on Mac OS X is the best option, there are many other excellent software applications for Windows PC’s that track stocks (just enter in every transaction) and you will get a running total of your capital gains and losses.
I’m sure the PC folks here can mention their favourite Capital gains stock tracking software.
(you still have to manually enter in every buy and sell transaction)

Hi !! This is a very good and informative post about taxes in canada, I liked it, but can you provide information on taxes in UK. It would be quiet a help.
thanks
Jason

I am considering buying property in the US, being that prices are quite attractive, and was wondering if anyone is familiar with taxation associated with Canadians buying property in the US. If I do decide to buy property now and sell when the property has appreciated again, how and where will I have to pay capital gains taxes? Would it be more beneficial to pay in the US or in Canada? I heard that you just pay taxes in one country as per NAFTA…

Hi,

How to calculate the capital gain/loss if I sell a portion of the stock ?

Say, purchased 10 ABC stocks for a total cost of $1000
and sold 5 ABC stocks for $600, capital gain would be $100 ?

I would appreciate your reply.

XGW

If I purchase $1000 in stocks and at the end of the year they are worth $1200 but I don’t cash them out, I keep the stock. Do I have to claim the $200 in my taxes as an income for that year and pay taxes on it. Or do I only report it on my taxes when I actually sell the stock down the road and have still made a profit?

I’ve been investing since last July – I have both capital gains and losses in my non-registered account for 2007. I had about 30 trades. I was unemployed for the past 5 years, so zero income for 2007.

I have a few questions, hope someone can help me with this – its all very confusing to me:

1) Can I claim my trading expense cost for buying and selling those stocks for 2007.
2) I lost money converting Cdn$ to US$ to buy stocks and also converting it back to Cdn$ – can I claim this loss?
3) Where on the 2007 tax form do I put my capital gain
its not employment income? What line #?
4) where do I find out my tax bracket for the capital gain? any website?
5) What would be the amount I put as capital gain on the Tax Form – is it the total before losses and expenses or after?

For e.g lets say my capital gain was 20,000 and my losses were 8,000 = 12,000

My trading expenses, let say = 1,000
My currency conversion loss = 1,000

Will it be 12,000 – 2,000 = 10,000 x .50% = 5,000 I would put on the taxation form as capital gain?

6) Does my partner put my capital gain on his return as my income even though I wasn’t employed?

I would really appreciate your help with this – I dont have an accountant and the end of April is fast approaching. Thanks in advance.

Frugaltrader,

Thanks very much for your response, and for the online and pointer information.

p.s I have been using my savings,line of credit and existing stocks to fund my trading activities. I’ll claim the interest incurred on my line of credit even though it wasn’t designated for trading.

Thanks again.

FrugalTrader,

Thanks very much for your response and for the information on the online programs and pointers.

p.s I used my savings, existing stocks and line of credit to fund my trading actitivies – I’m planning on claiming the interest incurred on the line of credit for the year.

Thanks again

One thing to consider when investing in your RRSP. As you say capital gains are taxed at 100% of your marginal rate inside your RRSP but if I invested in lets say microsoft 25 years ago my $5000 investment is now worth millions of $ while my interest bearing long bond is worth maybe $13000. I can pay the tax and still have nearly a 1000 times more money than I would if I invested in the long bond. I know MSFT is not exactly typical of the average equity return but I hope you get my point.

Jim

That’s perfect in theory and for the most part I obviously agree with your suggestions, however I think it is misleading a lot of people who do not need a non-registered account for anything. If you have room and it makes sense to have your portfolio in your RRSP, it will outweigh the idea of investing outside of it. Also, no one keeps one stock for that long without paying tax along the way and the loss of the compounding is huge.

In a perfect world one would have bought Apple 30 years ago and left it and then in that case The non-registered route would be the way to go.
My two cents is that it’s not quite as cut and dry as just saying don’t invest in anything but interest bearing stuff in your RRSP.

I would probably invest in MSFT outside of my RRSP and inside my RRSP.However since we are at the end of a grand super cycle degree advance in stock prices (yes im an elliott wave guy) I wouldnt being investing too heavily in equities for the long term. BTW we are going to have one more counter trend reversal which should take us us to 2550 on the NASDAQ before the final move down.

James

[…] you can subscribe to the RSS feed via reader or E-mail.There was a comment left on the "How Capital Gains Tax Works" article about how to calculate your capital gains when you make multiple stock purchases at […]

===
My wife and I are in the process of purchasing property in Panama.We plan to live in Canada for 6 MTHS and there for 6 MTHS.How would capital gains work if we sold that property or bought another as an investment and sold it?Should we register it in our names or form a company for this purchase.Cheers! Hope someone can help me!Chris
===

If it is on a company name you only have to pay taxes when you take the money out from your company but your company may have to pay taxes too depending where it will by registered (Canada or Panama).

I know someone who has plenty of stocks, but plenty of debt, too. Is there any way they can use some of the stocks to pay down some debt without incurring lots of capital gains? The only think I can think of (I am definitely not too financial savvy) is to transfer some of the stock into RRSPs (max out their contribution room). Would they get a big tax refund they can then use to pay down some debt? Any advice?

Terrie

What a nice site is this!
I was investing in Mutual Funds all the way and the information here (about CG, Dividends and online brokers) gives me the idea that the ONLY proper way to invest money OUTSIDE of RRSP would be in Stocks and ETFs.
I have some questions here:
1. Am I right that with Mutual Funds there are no tax breaks? Like if I invested $1000 and then received $1200 from it, then I pay a tax on $200 while if I do same thing via ETF, I pay it only from half of that amount (being $100)?
2. What about fees paid to broker companies ($5-$10 per transaction)? Is it tax deductible as investment expenses?
3. If my wife has no other income and some investments are on her name – she does not pay any taxes on investment income (when it’s below $9k p.a.), however this reduces my tax credit and effectively increases my taxes for something like 10-20% of the amount. Is there any benefit in this case with capital gains vs. interest income?

Thank you very much, FT!

Denys:

For Question #3 You might also want at having your wife invest in Dividend paying stocks. As long as the company is Canadian and its an “eligable” dividend (CRA’s rules) there are tax advantages. A person could earn about $25k in eligable dividend income and not pay any taxes on it.

You’d also have the potential that the stocks could appreciate.

I have a Corporation which owns a Rental Real Property.The Corporation does not do any other business(it is a shell company).This property is now sold (to close in sept this year) for a potential profit of approx 40K.
This I believe will classify as Capital gains. My question is
a) Is all of this taxable or 50% is taxable
b) How to minimise taxes arising from this sale

thanks
Ken

[…] question! Lets start with capital gains and assume that the investments are in a non-registered account. U.S Securities face the same […]

BTW my call on April 14th (the stock market is at the end of a grand super cycle advance and I wouldnt be investing for the long term) appears to be right on the money. Your welcome.