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.

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.

 

130 Comments

  1. Dudley Brown on October 12, 2008 at 2:23 am

    My wife is a dual citizen. We have a small home in her country of origin and want to sell it. Of course, we’ll have to pay taxes on it there, but will we have to pay capital gains taxes on it here in the US? This home was our residence there until we returned to the US a little over 2 years ago. We had a rental home in the US which is currently our permanent home.

    Thanks.

    Dudley

  2. cannon_fodder on October 30, 2008 at 11:59 pm

    Does the superficial loss work (almost in reverse) if one shorts a stock, then buys it later at a higher price to bring one’s position to zero, and THEN buys it long, sells it at a profit all within 30 days but without realising an overall profit?

  3. Xin on October 31, 2008 at 12:29 pm

    Hi FT,

    Thank you so much for this article. But with current financial situation, I have more questions about capital loss. I’m thinking it’s good time for realizing my capital loss in this year. I am afraid of superficial loss rule. And also as a trader, I may do my transactions within 30 days a lot. How can I claim the loss. Just using your example but another way. Say:

    Purchase 10 ABC stock for a total cost of $1000
    Sell 10 ABC stock for: $1200
    Gain: $200
    Repurchase 10 ABC stock within 30 days for: $850
    Sell 10 ABC stock in the future for $550:
    Profit: $200(initial gain)-850+550 = -$50(Loss)

    As long as I didn’t buy it back after this loss, I can claim this $50 loss as capital loss. Am I right. So Actually it doesn’t matter how many transaction I have done between the year. As long as after your last sell , you didn’t buy it back within 30 days. You can claim loss.

  4. Barry on November 23, 2008 at 6:17 pm

    Terrific website – thanks for such selfless public service.

    A related question: I think it normally takes 3 days to clear each transaction if I use the cash in my account (not on margin) but what if I purchase a stock at 20 bucks, sell it at 21, it goes down to 19 and I repurchase it at that price only to sell it at 22 … and all the buying and selling occurs within a 30 day period.

    Fat chance! But is this legal and are the only tax implications just a capital gain on two separate occasions within that period … taxed on the usual 50% of your gain?

  5. Jeanette - single mom on December 2, 2008 at 1:30 pm

    I currently have capital appreciating stocks within my RRSP…what is the best way of getting them out? They are currently in a loss position.

  6. Mike on December 7, 2008 at 11:29 pm

    Simple question:

    If I sell some stocks in 2008 and am an overall net loser on the year, can I still claim the capital loss against my income tax?

    Or do the capital losses roll over to the next year and offset any capital gains?

    How long can you keep rolling over these losses? Ie. what if I don’t sell any stock in 2009, can my 2008 capital losses be claimed in 2010 or 2011?

  7. FrugalTrader on December 8, 2008 at 9:10 am
  8. David Newing on December 15, 2008 at 8:35 pm

    mutual funds in a NON-REGISTERED, portfolio are they treated the same as a regular stock when purchased or sold, capital gains or losses ?
    Thanks for the lessons, they’re great Dave

    • FrugalTrader on December 16, 2008 at 8:59 am

      David, the answer is yes, mutual funds are treated the same as stock in a non registered account.

  9. Year End Tax Tips: 2008 | Million Dollar Journey on December 17, 2008 at 8:00 am

    […] your gains, thus reducing your taxable amount.  Capital losses can also be carried back against capital gains accrued in the previous 3 years and carried forward indefinitely.  Make sure you do this by […]

  10. Jay on December 23, 2008 at 12:59 pm

    I was hoping someone would answer Zin’s questions?

  11. FrugalTrader on December 23, 2008 at 1:05 pm

    I believe Zin is correct. However, it would be best to double check with a tax professional.

  12. Al on December 29, 2008 at 11:24 am

    Are forex earnings taxed under capital gains ?

  13. […] the primer on taxation and investing. I always start with Million Dollar Journey’s posts on investing and taxes. Please note that this is a general over-view and tax rates vary from jurisdiction to jurisdiction […]

  14. RM on January 17, 2009 at 8:36 pm

    I have a question about your RRSP vs. non-registered account conclusion. When I contribute to my RRSP, the contribution is tax deductible. So (simplistically) if I’m in the top marginal bracket and get a $5,000 bonus at the end of the year, I can contribute $5,000 to my RRSP to earn investment returns. After 30 years at 8% returns (all cap gains) I would have $50,313 in my RRSP. If I took it all out, and was taxed on the full amount at the top marginal tax rate (43%) I would have $28,679 (=$50,313*(1-43%)).

    Now, if instead I invested the money in a non-registered account outside of my RRSP, I would start with $2,850 after tax (at 43%). Compounding this at 8% for 30 years I would have $28,679 in my non-registered account. If I sold all of my securities at that point and realized a $25,829 gain (=$28,679 minus $2,850) I would incur taxes of $5,553 (=$25,829*50% inclusion rate*marginal 43% tax rate). This would leave me with $23,126 (=$28,679-$5,553).

    If I compare the two, I’d be $5,553 wealthier ($28,679-$23,126) by investing through my RRSP. Note that, the benefit from investing through my RRSP would be even greater if I begin drawing from my RRSP after I retire, because I would no longer be taxed at the top marginal rate on the money that I am withdrawing (since the withdrawals from my RRSP would be my only source of income).

    Let me know if there’s something wrong with my analysis.

  15. FrugalTrader on January 17, 2009 at 9:21 pm

    RM, at first glance, your math looks correct. Looking back, perhaps I was a bit quick to assume that keeping capital appreciating investments outside the RRSP is the best bet. However, one thing you have to note is that you assume that the investor reinvests 100% of the tax refund. Once the investor starts “spending” the rrsp tax refund (which is, unfortunately, what a majority of people do), the rrsp’s power quickly dwindles.

    A common question these days is not rrsp vs non-reg, it’s now rrsp vs. tfsa.

  16. […] Capital Gains – Capital gains is another popular method of distributions and is taxed 50% of your marginal rate. […]

  17. mojo30 on February 12, 2009 at 12:08 pm

    Hi Guys,

    first post, I have been browsing off and on for a while and decided to join the conversation.

    Do capital gains taxes have to be paid if the money is not withdrawn?

  18. FrugalTrader on February 12, 2009 at 1:22 pm

    mojo30, in a taxable (non-reg) account, capital gains tax is owed upon selling a profitable stock.

  19. mojo30 on February 12, 2009 at 6:07 pm

    thanks

  20. Miguel on February 16, 2009 at 2:15 pm

    I appreciate the article, it helps shed some light on things. I do have one question though… If you have capital gains/losses in a given year, is that sort of thing tracked for you by your broker, or do you have to keep track yourself?

  21. Jay on May 9, 2009 at 6:41 pm

    I have a US funded Forex account and im living in Canada. How are the capital gains calculated? Do i have to keep track of the exchange rate for every trade i make and capital gains will be calculated in the canadian currency? if so that seems like alot of work, no

  22. investment advisor on May 19, 2009 at 10:43 pm

    The real tricky part is that no one knows what tax rates will be when you want to take the money out. That’s why it’s good advice not to have all of your retirement money in one “tax bucket”. If you have it spread around different “tax buckets”, you can choose the best one to pull from depending on tax rates at the time.

  23. poor white trash on June 4, 2009 at 11:51 pm

    I’ve recently decided on a new registered/non-registered strategy please tell me what you think. It’s pretty simple but i dont know if anyone really thinks of it.

    1. Invest everything in non-registered equities
    2. put 50% of any capital gains into RRSP’s

    putting 1/2 your capital gains into RRSP’s will give you a deduction that year equal to what you owe the Feds on the capital gains.

    Basically you get to invest the money in RRSP’s now that otherwise would goto the government for free. Then even if you lose it all in RRSP investments it was the governments money anyway.

  24. FrugalTrader on June 5, 2009 at 9:24 am

    pwt, yes that will work and will result in $0 capital gains tax. However, note that when you withdraw from the RRSP down the road that it will be taxed as income.

  25. sam on July 12, 2009 at 12:53 am

    Please guru help me out on this..
    I have capital gain this year around $1000 on ths stock with Etrade and i have RRSP with different institution so is there any way if i can move this money to RRSP to save capital gain amount.
    Not sure how it will work but please advise.

    Thanks

  26. FrugalTrader on July 12, 2009 at 9:21 am

    Sam, I’m no guru. :) But to answer your question, if you transfer shares to an RRSP, it’s deemed to be sold on the day of transfer. So if there’s a capital gain, you will have to pay tax anyways. If you really want to avoid the capital gains tax, you could donate the shares to charity.

    https://milliondollarjourney.com/charitable-donation-tax-credit-part-2-strategies.htm

  27. invetor on July 27, 2009 at 12:24 pm

    Great information.
    I have a few questions need to be clarified.
    I am going to buy etf XDV through sharewoner. I know there is ROC.
    Like you said I have to half the ROC as my income.
    If I use qicken to file my tax Is there form available for the ROC.

    Thanks

  28. FrugalTrader on July 27, 2009 at 12:27 pm

    invetor, here is a detailed explanation of how return of capital works.

  29. invetor on July 27, 2009 at 12:31 pm

    Great information.
    I have a few questions need to be clarified.
    I am going to buy etf XDV through sharewoner. I know there is ROC.
    Is XDV good for Drip

    Thanks

  30. FrugalTrader on July 27, 2009 at 1:24 pm

    I know that XDV can be under a synthetic DRIP with any discount brokerage (ability to buy at least 1 share/distribution, otherwise distributed as cash). However, I don’t think you can drip directly from ishares.

  31. paul on November 10, 2009 at 4:47 pm

    Hi guys,

    I am about to sign up for a questrade platform. But could not decide if i want it to pay for my platform fee from within the rrsp account or non rrsp. is that fee deductable.

    Thanks

  32. FrugalTrader on November 10, 2009 at 4:53 pm

    paul, investing fees should be paid outside an RRSP. The reason being is that RRSP contribution room is limited, so might as well use non-rrsp dollars to pay expenses.

  33. Paul on November 11, 2009 at 4:53 pm

    One follow up question, is it okay for me to assume that platform fees paid will be deducted for tax purposes in non registered, non business account?

  34. F A on December 3, 2009 at 9:28 pm

    Hi everyone,

    I am a futures (eminis, etc) day trader in Canada. Can someone tell me or direct me to an appropriate link where I can find how gains from futures trading is taxed? I am under the impression that futures trading gains are taxed as Capital Gains. Please feel free to provide your comments and share your knowledge.

    Thank you.

    F.

  35. F A on December 3, 2009 at 9:49 pm

    …and to add on:

    I am a full-time trader, hence my gains from futures trading is my ONLY source of income.

    Thanks

    F.

  36. Annette on December 22, 2009 at 11:56 pm

    I am looking at the possibility of cashing out some stocks for the sole purpose of re-purchasing and investing them held in my TFSA. I understand that I will take a hit of about 20% of the capital gains of the stocks( or 40 percent of half of the capital gains earned) if I am in the highest tax rate. Is there any way that I can avoid this? Is there any way that this could apply to the 750,000,000 personal tax exemption for capital gains in Canada? What would you advise? Thanks

  37. FrugalTrader on December 23, 2009 at 9:58 am

    Annette, the $750k cap gains exemption is for owners of ccpcs (Canadian controlled private coporations) when they sell their shares. It does not apply to investors who purchase public shares.

    There’s not a lot you can do to avoid the capital gains other than selling your losing stocks to claim the capital losses against your gains. As well, if you haven’t maxed out your RRSP, contributing will help reduce your tax burden.

  38. cashback cards on December 23, 2009 at 1:28 pm

    Is it always going to be right at 50%, and/or is that strictly Canada? Just wondering.

    Great information though! Really makes you think about where you to put your money and how to make it really work for you and not the gov’t.

  39. […] What vehicles I use to create positive cash flow as well as capital gains. […]

  40. […] are already many wonderful summaries of the tax consequences of each type of investment. Suffice to say, the general rule is this: low risk, low upside investments (think high interest […]

  41. lorca on February 19, 2010 at 11:33 pm

    Hi FT,

    Great article! I’m new to investing and am trying to be more tax efficient.

    I’ve maxed out my TFSA but my spouse has $10 000 unused contribution room. I would like to sell $10 000 worth of equity mutual funds in my non-reg account at a loss to offset some gains and repurchase the same funds at the same time (as I believe that they will rebound and potentially do well in the future) in my spouse’s TFSA to shelter future capital gains.

    Does the superficial loss rule apply to repurchasing within 30 days under a spouse’s account?

    Thanks

  42. Peter on March 8, 2010 at 1:58 pm

    Silly question- does your broker send you forms indicating your capital gains?

    • FrugalTrader on March 8, 2010 at 4:21 pm

      Peter, from my understanding, you are responsible for tracking your own buy/sells, there for your capital gains/losses. Most brokerages can provide a summary of your trading activity for the year.

  43. Xtrykr on March 12, 2010 at 2:43 am

    Hi FrugalTrader, say I have the following scenario:

    Aug 20 Bough 40 shares of A for $100
    Aug 24 Bought 20 shares of A for $50
    Sep 01 Bought 20 shares of A for $50
    Sep 10 Sold 80 shares of A for $150
    Sep 14 Bought 30 shares of A for $50
    Sep 23 Bought 20 shares of A for $75
    Sep 30 Bought 20 shares of A for $75
    Oct 01 Sold 70 shares of A for $150
    Oct 08 Bought 40 shares of A for $100
    Oct 16 Sold 40 shares of A for $150

    How do I interpret this? Do I work it out as:

    1) cap loss $50 from Sep 10 Sale plus cap loss $50 from Oct 01 Sale = $100 cap loss against $50 cap gain from Oct 16 sale, which is net cap loss of $50?

    OR

    2) Cap loss $50 from Oct 01 Sale against $50 Cap gain from Oct 16 sale, which is net zero? (due to repurchase of stock within 30 days?)

    The problem I’m running into is I have several stocks in my portfolio that I day traded (I’m not a professional day trader, was rolling the dice on a couple of my picks). I have completed a series of about 20 trades with a particular stock over the span of 3 months. Based on the rule, I have many superficial losses on some of my picks, and as a result, would like to know how to interpret this in my scenario. Thanks in advance!

  44. Xtrykr on March 13, 2010 at 1:38 am

    I actually have one more question, do I have to fill out a Schedule 3 for EACH stock I have traded, and disposed of, resulting in a gain/loss? (I saw the Schedule 3 form, it only has one line for one company!). I have traded about 15 different companies, do I have to fill out a schedule 3 for each of these? Or can I just staple my spreadsheet with my ACB and capital gain/loss calculations to it and tell them to refer to it? Thanks!!!

  45. Lisa on March 27, 2010 at 8:19 pm

    Great Info
    Just wanted to check. I pulled money out of my RRSP throught homebuyers this year. It was at a loss. Can I claim this as a capital loss? I am thinking not but wanted to check.

  46. Lora on April 8, 2010 at 11:37 pm

    Hi
    My bank over charge me interest in my margin account that I used to invest in stocks. I received a letter from my brokerage that they miscalculated the interest, and putt back the money in my investment account my question is for tax purpose what should this amount of money that I paid before as an interest be considered after I got it back
    Interest income ,so it will all taxes or
    capital gain so 50% will be taxed,
    or it was calculated in my tax calculation for year2009

  47. Aury (Thunderdrake) on April 21, 2010 at 5:43 pm

    Brilliant information here! Being a Canadian myself, this has taught me a lot of insight on capital gains tax. It’s important to remember it’s not about what you make, but what you keep. With these strategies in mind, I’ll know how to protect my capital gains big time!

  48. Ed Rempel on April 22, 2010 at 1:22 am

    Hi Lora,

    It would be a refund of the interest you paid on your margin account, so you should use it on your tax return to reduce the interest deduction.

    Ed

  49. Gurdeep on April 23, 2010 at 2:09 pm

    Hello,
    Slightly off topic, my mother received shares from her late husband’s estate. There was both a transfer fee and a fee for securing a bond to allow the transfer of non-probated assets. Can both these fees be factored in when calculating capital gain later (i.e. deducted the same way a brokerage fee for purchase/sale would)?

  50. Karim on April 27, 2010 at 6:31 pm

    I am sure this has been asked before but I can’t seem to find an answer to this. Suppose you’ve accumulated capital losses in trading stocks. If you then incur capital gains from the sale of real estate, can capital losses from stocks be used to offset capital gains from the sale of real estate?

    • FrugalTrader on April 27, 2010 at 7:10 pm

      Karim, yes, you can use capital losses from stocks to offset capital gains from real estate (and vice versa). In fact, I did that in 2009, sold stocks at a loss to offset capital gains from a rental property sale.

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