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First Canadian Place
100 King St. W, 38th Floor
Toronto, ON
M5X 1H3
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Commentary

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: Jeff Kopman (416) 365-6042