As patriotic people, Canadians understand that tax is a necessary function of government. We believe in paying our fair share, but don't want to pay more than we have to. Tax considerations form a major part of the work we do for our clients. As with all tax-related decisions, always discuss strategies with your accountant.
Investing and Taxes: Tax Smart Strategies
When you invest, there are three traditional ways to make money: Interest Income, Dividends and Capital Gains. Each of these also has specific tax treatment, which can impact your investment return and your tax bill throughout your life.
Depending on where you hold these investments (Tax-free Savings Account, Registered Retirement Savings Plan, etc.), the tax can impact you in different ways. We have developed a system to use existing tax rules and your feelings toward risk to create a tax-efficient investment mix which will help to deal with taxes now and later in life. We call these concepts Tax Smart Strategies.
Tax on Investing
In Alberta, the top personal tax rates for investments in 2016 are as follows:
Interest and Regular Income: 48.00%
Capital Gains: 24.00%
Eligible Canadian Dividends: 31.71%
Ineligible Canadian Dividends: 40.25%
Find out where you stand here, from a Manulife document on tax rates.
In Alberta, here are the top corporate tax rates for 2016:
Small Business Income (Active) up to $500,000: 13.50%
Rental/Interest/Royalties Income (CCPC, Passive): 50.67%
Rental/Interest/Royalties Income (non-CCPC, Passive): 27.00%
Find out more here, from a document provided by Manulife on tax rates.
Corporations and Taxes
Understanding the opportunities and pitfalls of investing inside of your private corporation can be very difficult. The recent tax changes established by Federal and Provincial government has made tax a major consideration for corporations. For an example, the tax rate on passive income in the province of Alberta is 50.67% when investing inside of corporations. With every interest dollar that you earn inside of your corporation, you lose over 50 cents to the various governments.
We believe that there is a better way to use retained earnings inside of your corporation to maximize the money that your shareholders will receive. Ultimately, it is about maxmizing the money each of your shareholders receive in their pockets, not just how much the corporation itself will make. We have developed a system to help make that happen.
Taxes at Death
The biggest tax bill you may ever pay could be your final tax return. It is a priority for some clients to ensure that they reduce the taxes that their estate will pay, and we work with them to ensure we are doing all we can to make that happen.
In general, you need to do a lot of proactive planning to ensure that your taxes are minimized at death. This can mean rearranging asset mixes, using insurance, and gifting assets before death. We have developed a process for making the most of your assets now and reducing the taxes owing on your final tax return.
Ensuring that you and your family receive the most after-tax return on your investments should be a priority. Our understanding of various regulations and investment classes can help ensure that your family makes the most of your net worth when it comes to taxes.
If you are concerned about the taxes you are paying on your investments each year, please give us a call at our office to set up an appointment. You can reach us at (403) 220-9808 or by sending us an email.