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Dale Jackson

Personal Finance Columnist, Payback Time


2017 has been a year of shattered records on equity markets, and with good fortune comes taxes.

For do-it-yourself investors with day jobs, that good fortune could result in a sideswipe from the Canada Revenue Agency. But, with two months left in the tax year, there are still a few tricks to keep more dollars in your pocket.

The first step is to estimate your total taxable income for 2017. The next step is to try to keep your investment gains from getting lumped in with your regular pay.

The following is a rough estimate of how different levels of income are taxed. It’s rough because there is overlap between federal and provincial rates, and differences between provinces.

Under $40,000 — 20 per cent

$45,000 to $90,000 — 30 per cent

$90,000 to $140,400 — 37 per cent 

$140,400 to $200K — 41 per cent

Over $200K — 46 per cent 

The trick is to bring your taxable income down to the lowest bracket. Every dollar saved in a 37 per cent tax bracket is a 37 per cent gain.

There are three basic tax saving tools for most investors:

Registered retirement savings plan: Contributions to an RRSP can be subtracted from income in the highest tax bracket. Those contributions can grow tax free but it’s important to remember they will be fully taxed when withdrawn in retirement. If you are in a low-tax bracket right now, it makes less sense to contribute to an RRSP because you will be taxed in a similar tax bracket in retirement.    

Tax-free savings account: Contributions to a TFSA can NOT be subtracted from taxable income, but investment gains within are never taxed. TFSAs are ideal for young people in low-tax brackets because there is plenty of time for growth, and money can be withdrawn at any time with no tax consequences.

Non-registered accounts: RRSPs and TFSAs have contribution limits, so it’s best to give first priority to income investments because they are fully taxed in non-registered accounts. However, only half of the capital gains from equities are taxed as income, and qualified dividends receive a dividend tax credit. Also, if you suffer a capital loss in 2017, you can deduct it from any capital gains going back three years, or forward indefinitely.