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Absolute Tax Savings
1-26-2016
One of the methods for achieving absolute tax savings choosing investments that generates income that is preferentially taxed. In Canada different tax rates apply to different types of income. Only one-half of a capital gain is included in taxable income, which effectively halves the tax rate that applies to capital gains vis-a-vis regular income (such as interest). Taxable Canadian dividends received by individuals are taxed according to a gross-up and tax credit mechanism that results in a preferential tax rate. The top marginal tax rates in British Columbia are as follows:
Salary and interest 45.80%
Dividend (non-eligible) 37.98%
Dividends (eligible) 28.68%
Capital gains 22.90%
The progressive structure of the tax system refers to stepped tax brackets that levy higher rates of tax on higher income.
2015 Federal Rates:
Taxable Income Rate
on the first $44,701 15.00%
$44,402 to $89,401 22.00%
$89,402 to $138,586 26.00%
more than $138,586 29.00%
2015 British Columbia Rate
Taxable Income
on the first $37,869 5.06%
$37,870 to $75,740 7.70%
$75,741 to $86,958 10.50%
$86,959 to $105,592 12.29%
$105,593 to $151,050 14.70%
more than $151,050 16.80%
An absolute tax savings is achieved when the total tax burden that applies to a stream of income is permanently reduced. After the taxman is paid, there is more cash left in your hands.
Investment selection decision are driven by many factors, including risk, return and portfolio considerations. If an investor were guided only by tax rates, he or she might be inclined to invest only in growth stocks with no dividend expectation . Obviously, this may not be prudent.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional beforeembarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. For more information on this topic or any other taxation matters, please contact taxes@alameen.ca.
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