Ep 9: Taxable Investing in Canada

8 snips

Mar 15, 2024

They unpack how different investment returns are taxed, from interest and Canadian dividends to foreign dividends and capital gains. Attribution rules and second-generation income quirks get a close look. They cover prescribed-rate loan planning, leverage in taxable accounts, and practical tax-loss harvesting pitfalls. Asset location and common tax traps finish the conversation.

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INSIGHT

Why Taxable Accounts Matter

Taxable accounts give flexibility beyond contribution limits and hedge against future higher taxes.
They also enable options for estate planning and income-splitting when used carefully.

INSIGHT

Tax Integration Basics

Tax integration aims to prevent double taxation between corporations and individuals.
In practice different income types receive distinct tax treatment to approximate neutrality.

ADVICE

Plan For Interest Taxes

Treat interest income as fully taxable and plan cashflow for accrued interest like GICs.
Expect to report accrued GIC interest each year even if you don't receive the cash.

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In this episode, we dive deep into the world of income tax and demystify the often intimidating realm of investment taxation. Join us as we break down various forms of investment returns, from interest and dividends to capital gains and more. Discover the impact of tax integration on Canadian dividends and learn how foreign dividends can add a layer of complexity to the process. Explore the critical concept of attribution rules and understand how they influence who pays the tax bill on investment income. We delve into strategies like prescribed rate loan planning and second-generation income planning to optimize your investments over the long term. Gain essential insights into tax-loss harvesting and how to navigate superficial loss rules effectively. Plus, hear valuable tips on asset location to maximize your returns while minimizing tax implications. To gain a deeper understanding of investment taxes and enhance your financial knowledge, tune in now!

Key Points From This Episode:

(0:02:27) Overview of the reasons to consider a taxable investment account.

(0:05:10) Mark and Ben explain the basics of taxes and investing.

(0:09:27) The different types of investment income and how they're taxed.

(0:12:49) Explore the problems associated with tax integration.

(0:14:28) Insights into the myth of dividend investing.

(0:19:36) Unpack the complexity surrounding foreign taxes and dividends.

(0:23:41) Net rental income and capital gains (realized and unrealized) are explained.

(0:31:05) A deep dive into a vital aspect of tax: attribution rules.

(0:45:54) Leverage investing in a taxable account instead of a registered account.

(0:49:04) Comparison of individual with joint investment accounts.

(0:54:14) Common tax pitfalls to avoid and useful tax-reducing strategies.