Answers to
Practical Questions
Want to impress your parents? Ask them if they know how to position their portfolio to earn $50,000 per year tax-free.
I am not talking about Tax-Free Savings Accounts (TFSAs) here. As you already know from browsing our Boring Definitions, all dividends, interest and capital gains earned inside a TFSA are yours to keep in your TFSA , OR withdraw from your TFSA , tax-free.
I am talking about something in addition to tax-free TFSA money.
In Canada, we benefit from the dividend tax credit (DTC), which is a little complicated, but in a nutshell, the DTC shields the first $50,000 of dividends from publicly traded Canadian corporations you earn per year in your non-registered investment account from tax. Again, this is in addition to your TFSA!
The best way to illustrate this for you is to visit SimpleTax Software Inc.
Let's run through a quick example:
Go to SimpleTax Software Inc.
Select the Province or Territory you live in – let's say Ontario for now.
Insert $0 for Employment Income – (you may well have a job today, but humour me).
Insert $0 for Self Employment and $0 for Capital Gains.
Now, insert $50,000 into "Eligible Dividends" (note that Eligible Dividends are typically what you receive from big public companies that trade on the Toronto Stock Exchange).
Insert $0 for "Ineligible Dividends" (note that these are dividends you receive from private companies).
Insert $0 for Other.
According to SimpleTax, you'll owe about $0 in tax: $0 in federal tax and $0 in provincial tax.
Now, this benefit is per person, so if you are shacked up with someone, that is $50,000 each, or $100,000 per couple tax free per year!
And again, this is in addition to your tax free earnings in your TFSA!
