These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Monies invested to purchase stocks/equities can generate returns with Dividend payments (discussed in Day 12) and through growth in the value/capital appreciation of the stock. People generally buy stock with the intention that they will grow in value. As the old saying goes – ‘Buy low, Sell high’. The growth in the value of stocks is known as capital gains and these gains are subject to tax in Canada.
For example: If one buys a stock for $5/share and it increases in value to $10/share, the gain is $5/share. The increase in value of the shares will be taxed when they are sold/redeemed. Not all the stock gains are subject to tax and like dividend income, receive preferred tax treatment. Currently, only 50% of the gain in stock values are subject to tax. This is known as the ‘inclusion’ rate. The inclusion rate is set by the government and is subject to change. It has been 50% since 2000 but previously has been as high as 75%. Using today’s rate of 50%, means that half of any stock gains will be added to your taxable income the year in which they are sold and subject to income tax. Gains can potentially be offset if there are any losses in the value of stocks.
It is best to speak with an investment specialist, Certified Financial Planner or tax specialist to determine the most effective capital gains strategies that are suitable for your family situation and investment objectives. Capital Gains rates apply not only to stock values but also properties that are not considered ‘Primary residences’ for tax purposes, such as income/rental properties or recreation properties like cabins and cottages. Proper tax planning can help minimize tax consequences for many investments.
Share these ideas with friends and family and come back to check out daily financial tips and ideas. If there are subjects you wish covered or questions, please email me and I’ll include them in future posts.