1. Tax rates are significantly more favourable for dividend income than interest income. The top personal tax rates in Ontario for 2021 are as follows:
The top personal tax rates are not expected to change for 2022.
You may want to re-evaluate your investment strategy by comparing the pre-tax dividend rates with the pre-tax interest rates using the chart provided in the Investment Income - A Closer Look section at the end of this chapter.
2. You can defer tax on interest to the following year by investing funds for a one-year term ending in the next calendar year.
3. You can also defer purchases of mutual funds until early in the next calendar year to minimize taxable income allocated in the current year from the mutual fund.
4. Existing companies that have built up refundable dividend tax on hand (“RDTOH”) may consider paying dividends to recover this tax. Depending on its year-end, the company may have up to 24 months to enjoy the benefits of the tax refund before the shareholder is required to pay personal tax on the dividend. The individual circumstances should be reviewed, including the marginal tax rate applicable to the recipient shareholder as compared to the dividend refund rate in the corporation (38.3 per cent).
9. Consider donating publicly-traded securities instead of cash.
A tax-advantaged gift of securities can be made to a private foundation as well as to public charities. Any appreciation in the value of the securities will not be subject to capital gains tax if the securities are donated to:
The donation credit (for individuals) or deduction (for corporations) continues to be available for the fair market value of the securities donated.
To avoid capital gains tax on the appreciated securities, the securities themselves must be transferred to the charity or foundation.
Similar rules will apply to a capital gain on ecologically-sensitive land donated to a conservation charity (other than a private foundation).
The donation of flow-through securities may trigger a capital gain to the donor.
It may be a smart time for you to consider whether your investment income is tax efficient and consider investment alternatives.
The table below has been prepared to assist you in this matter. It assumes that your investment goal is to earn an after-tax rate of return of five per cent.
It compares the pre-tax yield required to achieve a five per cent after-tax rate of return by earning:
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