Tax Considerations for Personal Investing

Tax Considerations for Personal Investing

ADMS 3531, Winter 2014

This handout considers the impact of income taxes on investments held in “non-registered” accounts. This information does NOT apply to “registered” accounts such as RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts). If a Canadian investor has already reached the maximum contribution limit to their registered accounts, then additional investing is done in a non-registered account.

A good reference for tax information is “Tax Facts and Figures: Canada 2013” from PricewaterhouseCoopers Canada, which is posted at

http://www.pwc.com/ca/en/tax/publications/pwc-facts-figures-2013-06-en.pdf

You do not need to know specific numbers from that document, nor from the examples below.

Please go to page 8/48 in the pdf file above; this has page number 4 printed at the bottom left. Find the row for Ontario. The numbers in thousands, such as 87,123, are dollars of annual income. The two-digit numbers with two decimal places are percentages, representing marginal income tax rates.

Let’s look at the percent numbers immediately to the right of 87,123. From the heading at the very top of the column, we see that these tax rates are relevant for investors with 2013 income in the range of $87,123 to $135,054. The first tax number for this income range is 43.41%, under the heading of “Ordinary Income & Interest”. If you have a job, the money paid to you by your employer is considered ordinary income. The 43.41% is your marginal tax rate – if you were paid more than $87,123, you owed 43.41% of those extra dollars (above $87,123) in federal and provincial income tax. Interest income, from bank accounts or bonds,