dividend tax credit

Canadian annuities offer a predictable source of income—but we advise against buying them.

Knowing how dividends are taxed in Canada can save you money

BMO S&P/TSX Laddered Preferred Share Index ETF holds floating-rate preferred shares that fluctuate with changes in interest rates. Our view.

BMO S&P/TSX Laddered Preferred Share Index ETF, $10.93, symbol ZPR on Toronto (Units outstanding: 90.6 million; Market cap: $990.3 million; www.etfs.bmo.com), holds Canadian floating-rate preferred shares. Issuers include Bank of Montreal, Enbridge, BCE, TransCanada and Canadian Utilities. The fund’s MER is 0.45%, and it currently yields 4.9%. Note that the dividends you receive from this fund benefit from the Canadian dividend tax credit. Floating-rate preferred shares pay dividends that fluctuate with changes in interest rates. The dividend rate may range from 50% to 100% of (usually) the prime bank rate. As interest rates rise, so do floating-preferred dividend yields....

With today’s low interest rates, investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price). Dividend-paying companies are responding by doing their best to maintain, or even increase, their payouts.

In fact, dividends can now contribute up to a third of your long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit (see below).

In addition, dividends are far more reliable than capital gains. A stock that pays a $1 dividend this year will probably do the same next year. It may even increase its dividend payment.

Canadian dividends give you tax advantages

Taxpayers who hold dividend-paying Canadian stocks get an additional bonus: their dividends can be eligible for the dividend tax credit in Canada.

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Yes, you can collect up to $49,284 in dividends every year, and not pay a single dime in income tax. You simply have to know how to invest with the tax code in mind. You need a guide in front of you that cuts through the maze of Canada’s tax laws and concentrates on the rulings that are most important to investors. You have to know where you can save and where you can gain with smart tax planning. That’s why we put together the TSI Network Tax Guide for Canadian Investors 2015.

Our tax guide is written from an investor’s point of view. This sets it apart from most tax guides. It is invaluable for both tax planning and overall portfolio planning. It puts special focus on the tax laws and tax strategies that mean the most to Canadian investors. We draw on our long experience in investment advice. With this background, we have created a concise guide, complete with seven tables for quick and easy reference.

With this guide, you approach your taxes, and the person you have chosen as your tax preparer or advisor, with a strong base of knowledge. You’ll have the ability to ask your tax accountant the right questions, or even handle your own taxes with confidence.

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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of strategy, and shows you how you can put it into practice right away. Today’s tip: “Dividends can produce as much as a third of your total return over long periods.”...

Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor. We continue to advise against investing in bonds, because low interest rates hurt their appeal, while rising rates would push down their future value. For stable income and growth, we prefer high-yielding utilities. Their dividends also qualify for the dividend tax credit. ATCO LTD. (Toronto symbols ACO.X [class I non-voting] and ACO.Y [class II voting; www.atco.com) holds 53.2% of Canadian Utilities. It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction and energy exploration firms; Canadian Utilities owns the remaining 24.5%....

Inflation remains low in Canada. That’s one reason why interest rates remain at today’s historically low levels. However, the long-term outlook is for higher rates, as the expansion of the money supply in the past few years will likely spur inflation. We continue to advise against investing in bonds, because low interest rates hurt their appeal, while rising rates would push down their future value. If you need stable income, we prefer highyielding utilities like these four. Their dividends also qualify for the dividend tax credit....

We’ve just updated and re-released one of our most popular free reports: Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing. It’s ready for you to download now. With today’s low interest rates, investors are paying more attention to dividend yields. Dividend paying stocks are responding by doing their best to maintain, or even increase, their payouts. In fact, dividends can now contribute up to a third of your long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit....