# Extremely favourable tax treatment on investments in Canada



## slacker (Mar 8, 2010)

Tax season is coming up, and it got me curious about how investment taxes compare to salary.

Compare $100,000 of earnings in Ontario.

If this comes from Salary, the average tax rate is going to be 26.4%.

If this comes from 50% capital gains and 50% eligible dividend, the average tax rate is only 6.6%.

I knew that there were tax breaks for investments in Canada, but I never knew it was this favourable.

This is a sweet heart deal. It really encourage me to save even more, so that I can count on my investment return, rather than my salary.

The only thing I'm worried about is that they'll change it in the future.


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## tygrus (Mar 13, 2012)

I think the marginal tax rate on that much salary is closer to 40%.

And essentially, the tax rate on $100,000 in dividend income between spouses is zero if you have no other income. Its a great deal, but to earn that much in dividends means you need 2+ million invested which isn't for the faint of heart. In the last two market down turns just in the past 6 months, that portfolio could have lost $200k.

They are unlikely to change it because the only people with that kind of money invested is the 0.1% which is probably maybe 10-20,000 people across the country.


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## Guban (Jul 5, 2011)

Don't forget that the $50k in dividends that you receive has already been taxed in the hands of the corporation, and that's why you are getting a tax break. You own a piece of that company, and that's profit from the company going to you. Don't kid yourself, when you throw in the taxes paid by the company, it is not like it is that great a deal. Don't cry for CRA. They get their slice.

The capital gains have likely also been taxed too. Good luck generating $50k paper year in capital gains consistently.


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## indexxx (Oct 31, 2011)

Guban said:


> Don't cry for CRA.


-doubt many of us are doing that!


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## pwm (Jan 19, 2012)

It gets even better when you consider that the interest paid on an investment loan to buy an income producing security is a tax deduction which is entered on your schedule 4.


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## CPA Candidate (Dec 15, 2013)

You have recognized that taxation in Canada is one of the major reason we have such inequality between people.


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## OptsyEagle (Nov 29, 2009)

Well, you need to remember that the $100,000 of salary only happens AFTER someone else invests in a business. 

So when the government gives the investor a break on the $100,000 capital gain, it is with the expectation that they will make some tax, that they otherwise would not have made, on someone working for a business.

Take away the one and you will lose the other.


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## uptoolate (Oct 9, 2011)

tygrus said:


> I think the marginal tax rate on that much salary is closer to 40%.


A salary income of 100k will give you an effective tax rate of 26.4% as stated by slacker. The marginal rate is 43.4% on money made beyond that (bracket starts at 89,401) so the more you have above that the more the effective rate will approach (but never reach) the highest marginal bracket you face. The highest bracket is now for income above 220,000 which is 49.53 (again in Ontario). No one pays that rate, even if they had a million dollars in salary income (and who the heck would have that much salary - well except those bank guys!). One can add 23k (or wherever the RRSP limit currently is) to the 100K number if one makes the contribution.

It has been posted many times but Taxtips.ca is great for looking at this. http://www.taxtips.ca/taxrates/on.htm


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