Proccounting Inc

When it comes to taxes on investment, we are generally dealing with interest income, dividends, and capital gains.

Interest income is the interest earned on money invested in GIC, savings accounts, bonds and the like. Interest income is 100% taxable. That means the whole amount of interest income is added to your income and taxed at your marginal tax rate.

Capital gains are the profit realized on the sale of an asset such as stocks and mutual funds. Capital gains are 50% taxable. That means half of the capital gains are added to your income and taxed at your marginal tax rate.

Dividends are distributions of a company's profits that are earned by investing in stocks or mutual funds. Taxes on dividends are little more complicated than on interest income and capital gains. It is based on a mechanism of gross up and dividend credit.

Generally speaking, capital gains are the most tax efficient and followed by dividends. Interest income is the least tax efficient investment income.

Dividends received from foreign companies do not qualify for dividend tax credit and are 100% taxable. It is taxed the same way as interest income.

Capital losses can be used to against capital gains. Unused capital losses in current year can be carried forward indefinitely to offset future year's capital gains. Unused capital losses in current year can also be carried back to the previous three years to offset capital gains in those years.

You may be able to deduct certain expenses related to your investments. These expenses may include interest paid on money borrowed to invest, investment counsel fees, and safety deposit box charges etc.

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