Q&A: Tax-efficient investments
Question: I make between $60,000 and $65,000. What type of investment would give me the highest after-tax return? – Darryl
Gordon’s answer: You don’t tell us where you live (it makes a difference in terms of tax rates) so let’s use Ontario as an example. Your 2004 marginal tax rate on regular income is 32.98 per cent. If you invest in interest-bearing securities, such as bonds, that is the rate you would pay so clearly this is not the way to go.
Dividends fare much better. The 2004 tax rate in your income bracket is 16.86 per cent, about half the rate payable on interest income. That’s because of the application of the dividend tax credit but remember it only applies to dividends paid by Canadian companies. U.S. dividends don’t qualify. Capital gains get a slightly better break, with a 16.49 per cent rate.