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Murphy Chan B. Comm., CIM®, FCSI, CFP
Winnie Koch

Tel: 604-927-1325
Toll Free: 866-501-5053
Fax: 604-927-1327

Address
885 West Georgia Street
18th Floor
Vancouver, BC
V6C 3E8
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Tax Strategy

Taxing Investment Returns

With so many different investment options available today, it is no wonder investors are unsure which ones are best suited for their portfolios and how the various forms of investment returns will be taxed.

The three most common types of investment returns are interest, dividends and capital gains. Since interest income is taxed at your marginal rate, it is considered the least tax efficient form of investment return. Dividends from a Canadian corporation (including a stock dividend) receive preferential tax treatment that reduces the tax rate on this type of return. However, dividends from a foreign corporation do not get preferential tax treatment in Canada and are taxed at the same rate as interest income. As for capital gains, including capital gains dividends, only 50% is taxable. Foreign gains must first be converted into Canadian dollars to determine the actual amount of capital gain. This is of special importance with the current strength in the Canadian dollar.

If you receive a stock split, it is not taxable - you will have more shares but the same total cost base. If you receive a return of capital, it isn't taxable either; however, you must reduce your cost base and this will affect your ultimate gain or loss on sale.

For more information please contact me directly: Murphy Chan (604) 631-2663

Reduce Your Personal Taxes

Preparing your income tax return can be stressful and time consuming, but there are tactics that can help reduce the amount of tax you pay:

Employment Income
Exercising employee stock options? - Speak to your employer about deferring the employment benefit.

Will you have an employer provided car? - Keep track of personal and business use to reduce the income inclusion.

Receiving a bonus? - Defer it for a year if you will be in a lower tax bracket.

Do you have unused RRSP contribution room? - Make this year's contribution now and start enjoying tax-deferred earnings.

Investment Income
Keep investments that generate interest income in a registered account to defer taxing the income and hold dividend paying investments that are taxed at a lower rate outside your RRSP or RRIF.

Will you realize a capital gain? - Carry forward losses realized in previous years to reduce taxable gains.

Are you and your spouse splitting investment income? - Consider a loan for investment purposes.

Charitable Donations
Do you and your spouse make charitable donations? - Claim all donations on one tax return regardless of the donor. You receive a tax credit equal to 16% on the first $200 donated and 29% on any additional donations.

Are you planning to sell investments during the year? Will you also be making a charitable donation? - Donate the investments directly to charity and halve your tax.

Pension income
Are you and your spouse collecting CPP/QPP? - Sharing benefits may reduce the total tax on this income and may also prevent the higher income earner from losing any OAS entitlement.

Are you collecting an employer pension? - A $1,000 tax credit is available to individuals in receipt of employer pensions and also to those aged 65 or older who receive RRIF payments.

Get Your Tax Refund With Every Pay Cheque

Using an RRSP for retirement savings provides two great opportunities: a tax deduction and tax-deferred investment returns. If you make an RRSP contribution (other than through your payroll deduction) your taxable income is reduced which may result in an income tax refund. But an income tax refund is not necessarily a good thing. It actually means you've paid too much tax throughout the year and you are now claiming it back. In other words, you have given Canada Revenue Agency (CRA) an interest-free loan until the time your tax return is processed and you receive your refund cheque.

One solution to this problem is to have your employer reduce your income tax withholdings to reflect the RRSP contribution you will be making during the year. To start the process, send a request to any tax services office of CRA. Once approved, your employer will be authorized to reduce the withholding amount. The reduced withholding provides an excellent opportunity to increase or begin a monthly RRSP contribution or other savings strategy. Why wait to get a refund when you can pay less tax throughout the year.

For more information please contact me directly: Murphy Chan (604) 631-2663