September 4, 2018

Here’s what taxes can do to your savings if you’re not careful

Over 65 percent of Canadians are aware of and contribute to a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). Both of these options are ways Canadians can protect their savings from being taxed. But, if you are looking to save some money outside a TFSA or RRSP account, then you need to know your options to minimize taxation on those savings. Investment of income outside of these two accounts typically fall into three taxation categories: capital gains, interest income and eligible dividends income. Each is taxed differently if you choose to invest and save, you should choose which works best for you.

Key Takeaways:

  • Interest income earned from deposits in savings accounts, guaranteed investment certificates (GICs), or bonds is treated like your regular income from a tax perspective.
  • Capital gains are incurred when you transfer or sell an investment like a stock, and is taxed at your marginal rate, but only half of the capital gain would be subjected to tax.
  • Eligible dividends income is paid to shareholders, and the tax rate applied is often lower than that for interest income and higher than that for capital gains.

“If you have any savings sitting outside an RRSP and TFSA, you should be aware of the tax bite. Different types of investments are taxed differently, and this can make a significant difference to your actual investment returns.”

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