TAX TIPS FOR INVESTORS

These are some helpful tips for investors on managing their tax transactions:

INTEREST & CARRYING CHARGES:  Whenever money is borrowed to invest, in anything other than your personal residence or an RRSP, it is tax deductible.

FOREIGN INVESTMENT INCOME:  Most income from investments that you own personally is taxable, whether it is domestic or foreign. 

PURCHASING INVESTMENTS PERSONALLY VS CORPORATELY:  Investments held in a corporation are considered passive income, unless investing is the main line of business of the Corporation.  Passive income in a corporation is taxed at the highest tax rate.  Therefore investing personally is more tax effective unless the individual is already at the highest marginal tax rate.  However, this being said, the advantage of investing through Corporations is that you can maintain control of your assets without ownership of them.  This allows for creditor protection.

ASSET ALLOCATION:  A big key for tax savings in investments is asset allocation.  Allocating which spouse or family member holds the investment, allocating the trust, or a corporation to hold the investment, or holding the investment offshore, all lead to tax savings when planned properly.

For more on tax planning for investors, send me an email at info@kustomdesign.ca or just go through the Ask the Guru section. 

TAX PLANNING FOR THE INVESTOR

Investments are usually found in 3 asset classes:  Real Estate, Paper and Business.  Each class has different tax considerations:

• REAL ESTATE:  Usually income will be rental income (similar to business income) or Capital Gains.  Remember only 50% of Capital Gains are taxed.  The Capital Gain of selling your Personal Residence is exempt from taxes. 
• PAPER:  Usually paper investments such as bonds and other notes produce interest income.  Interest income is taxed at the highest rate of all investment income.  It is important to ensure that you are making a good rate of return on interest to make the after tax amounts worth it.
• BUSINESS:  Usually business investment is in the form of Dividends and Capital Gains such as stocks purchased in a public company.  Both Dividends and Capital Gains have preferential tax treatment.