Most don’t know how investments are taxed

Only half of Canadians regularly seek out tax-smart options when considering new investments, finds a study by BMO Nesbitt Burns.

Also, a majority lack knowledge about how income investing is taxed:

• 59% do not understand how capital gains are taxed; and
• 59% are uncertain how dividend income is treated from a tax perspective.

Read: Tax tips for the landlord

“One of the reasons why people don’t seek out tax efficient investing solutions may very well be because many don’t fully understand how investments are taxed,” says John Waters, Vice-President, Head of Tax & Estate Planning, BMO Nesbitt Burns. “Being aware of how investments are affected by taxes is the first step to being tax smart with your portfolio, and can be crucial in maximizing your overall return.”

Further, 54% say tax credits offered on charitable donations do not have much (or any) influence on their decisions to give.

Read: Cross-border tax tips

“The tax system is designed to encourage Canadians to donate and support charitable causes, so there’s definitely an incentive for people to consider factoring giving into their yearly budget,” says Waters. “Donating to charity provides not only the opportunity to do good, but can also reduce your income tax bill and put a little money back into your pocket.”

Donations can be claimed in the tax year they were made or carried forward for up to five years. To optimize tax savings, spouses can pool their charitable donations.

Read: How does CRA tax Bitcoins?

Additionally, incentives like the First-Time Donor’s Super Credit (FTDSC), which is available until 2017, encourages Canadians to support charities by giving new donors an extra, one-time 25% federal tax credit for cash donations up to a maximum of $1,000. For example, under the FTDSC, with a donation of $500 the federal tax savings to your client would be $242, which is in addition to the savings from your provincial donation tax credit.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.