# Line 13 on T5, tax rate?



## razz (Oct 21, 2014)

Hi Folks, 

Catching up on my taxes and filling in my T15 line 13 (Interest from Canadian sources). When I enter the amount of $1132.94 my return decreases by 31.15% on income of $69,956.87. Is the interest on interested collected at the bank get taxed at the marginal tax rate? If that is the case it make more sense to invest it in stocks, where the tax is a flat 20% (Capital Gains). Am I understanding this correctly. BTW this is for tax year 2014. 

Cheers,
raczyk


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## Spudd (Oct 11, 2011)

Yes, interest is taxed at the marginal tax rate (taxed as ordinary income). 

However, capital gains is not taxed at a flat 20%. You take 50% of your capital gain, and that is taxed at your marginal tax rate. For example, if you had capital gains of $1000 and your marginal tax rate was 30%, you would pay $150 in tax (vs $300 if that had been interest). 

So yes taxes are less on capital gains. But you don't want to make decisions about your asset allocation based entirely on taxes. For example, if you need the money a year from now to buy a new house, investing it in stocks would be too risky, because stocks can go down as well as up. In that case you should keep it in a savings account even though the interest is taxed at a higher rate.


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## razz (Oct 21, 2014)

Thanks for clarifying Spudd, it does appear interest gained in a savings account is indeed taxed at the marginal tax rate. Wish I knew this before, as I'm also getting into stock investing. And as you put it, the tax on capital gains is half that of the interest on the savings account. A correction may be in the works, especially when interest rates are raised. But so far I've done much better than my money does sitting in a savings account.


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## Eclectic12 (Oct 20, 2010)

Experience is a good teacher.


Where one had not noticed this, then maybe a book from the library on investing would help?

Just about all the beginner investing (or tax) ones I've looked at highlight that one of the benefits of investing is having better than income/interest tax rates for investments held in a taxable account.

As an illustration, here's the 2016 Ontario tax rates (for the next dollar at that income level). It clearly shows that interest/income (they label it "Other Income") has the highest tax rate. Capital Gains and Eligible Dividends take either best or second best, depending on the income level.

http://www.taxtips.ca/taxrates/on.htm


Cheers


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## carverman (Nov 8, 2010)

Eclectic12 said:


> As an illustration, here's the 2016 Ontario tax rates (for the next dollar at that income level). It clearly shows that interest/income (they label it "Other Income") has the highest tax rate. Capital Gains and Eligible Dividends take either best or second best, depending on the income level.
> 
> http://www.taxtips.ca/taxrates/on.htm


 ^^^^^^^^^

Thanks for the taxtips link Eclectic12. I was able to basically determine what taxes I will have to pay for 2016 even before receiving the T4s and T5.
I was interested to see how much the $10k I received from the NorteL Hardship fund would skew my taxable income and consequently reduce my refund.
I found out that with my rather significant medical, charitable and DTC, I don't need to put as much into my RRSP as I thought for 2016.
The difference between a $2500 RRSP contibution and a $500 contribution is only about $43 more of tax payable. 
The main difference is that I will have to pay $450 OHIP instead of $300 on the additional one time payment.

This is a great tool. I've bookmarked it.


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## Eclectic12 (Oct 20, 2010)

Glad it's useful ... a bit puzzled why the same link plus the "here's how to use the tables" link in post #10 of your "Need Advice" thread was missed.

... stuff happens, though. :tennis:


Cheers


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