Quote:
Originally Posted by Snoop Todd
Thanks Pete.
Can you explain the last sentence a little? Your assumption is correct, so are you saying I should try to target Canadian dividend paying stocks / funds down the road, or that this is something I should mention to Vanguard when trying to come up with a strategy?
Basically any gains from investments fall into 4 categories:
Capital gains (Gains from buying stocks and then selling at a higher price)
Eligible dividends (Gains from dividends paid by Canadian companies)
Ineligible dividends (Gains from dividends paid by foreign companies)
Interest income (Interest from bonds and cash deposits)
Basically the last two categories are taxed at the full rate, capital gains are taxed at 50% of the full rate, and eligible dividends are complicated but ideally you want as much of your investment income to be as eligible dividends as possible unless you're making $100k+ from investments annually. (So if you're investing ~1.5-2 million or more you're actually going to want to start avoiding dividends)
You can play around with Capital gains/Eligible dividends/Ineligible dividends numbers on
https://simpletax.ca/calculator to see how they're taxed.
So assuming you're investing around a million or less, Canadian stocks that pay a high dividend (ETFs like Vanguard's VDY and preferred share funds like ZPR, CPD for example) are super preferable from a tax perspective. Avoiding high dividend paying foreign stocks is a good idea too.
That all changes quickly if you have employment income or significant rental income or similar so it all depends on your individual situation. In that case you'd want to try to avoid dividends in favour of capital gains.
In the end these considerations might make something like a 0.5-1% difference on your average annual return, so it's significant but not worth nitting it up over when you're getting started. Your #1 priority should be to get invested in a balanced portfolio with low management expenses.
Last edited by stinkypete; 03-27-2017 at 06:49 PM.