Comments on: The Impact Of Tax On Investment Income http://www.johnchow.com/the-impact-of-tax-on-investment-income/ The Miscellaneous Ramblings of a Dot Com Mogul Thu, 28 Aug 2008 18:26:37 +0000 http://wordpress.org/?v=2.6.1 By: Career Ramblings » Blog Archive » Taxable Vs Tax-Deferred Growth http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-35193 Career Ramblings » Blog Archive » Taxable Vs Tax-Deferred Growth Fri, 09 Feb 2007 18:19:54 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-35193 [...] John Chow says it best when he said the “number 1 rule is to always think after tax” when looking for investment opportunities.  I agree.  Tax-deferred growth makes a huge difference when looking years down the line.  I created the below comparison to give you an idea of the impact: [...] [...] John Chow says it best when he said the “number 1 rule is to always think after tax” when looking for investment opportunities.  I agree.  Tax-deferred growth makes a huge difference when looking years down the line.  I created the below comparison to give you an idea of the impact: [...]

]]> By: John Chow http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14594 John Chow Mon, 18 Dec 2006 13:05:44 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14594 FrugalTrader - You are correct. I should made clear in my example that I was using interest only. FrugalTrader - You are correct. I should made clear in my example that I was using interest only.

]]> By: FrugalTrader http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14587 FrugalTrader Mon, 18 Dec 2006 12:26:36 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14587 "If you were to invest this $10,000 outside of a RRSP, the income it makes will be subject to tax at your marginal rate. If you’re at the 40% tax bracket, it would mean $400 in taxes in the first year ($10,000 at 10% return = $1,000 @ 40% tax = $400 in taxes). That leaves only $600 to put back into investments, where as the RRSP will allow you to put the full $1000 back. The impact over 30 years is huge. Instead of having over $174K for retirement, you’ll have just $57,434.91." This is not accurate John. If you invest $10k outside of an RRSP, you ONLY pay taxes when you SELL your stock at a profit (or collect dividends). Even then, only 50% of your profit is taxable (capital gains tax, dividend income is different). So, if you are in a 40% tax braket, make $10k PROFIT on a stock when you sold it, you would pay taxes on $5k at your marginal tax rate. If you are in the 40% marginal tax rate, you would only pay $2k taxes, which works out to be 20% NOT 40%. Investing OUTSIDE an RRSP is a viable solution for some. Please see taxtips.ca for more accurate tax information Now if you make $10k in INTEREST income for the year (like in a bond, GIC, or high rate savings account), THEN $10K would be added as income in your marginal tax rate. Thus, at a 40% tax rate, you would pay $4k in tax. So INTEREST income should be kept inside (due to high taxes), but capital gains and dividend income can be kept outside due to tax efficiency. FrugalTrader http://www.MillionDollarJourney.com “If you were to invest this $10,000 outside of a RRSP, the income it makes will be subject to tax at your marginal rate. If you’re at the 40% tax bracket, it would mean $400 in taxes in the first year ($10,000 at 10% return = $1,000 @ 40% tax = $400 in taxes). That leaves only $600 to put back into investments, where as the RRSP will allow you to put the full $1000 back. The impact over 30 years is huge. Instead of having over $174K for retirement, you’ll have just $57,434.91.”

This is not accurate John. If you invest $10k outside of an RRSP, you ONLY pay taxes when you SELL your stock at a profit (or collect dividends). Even then, only 50% of your profit is taxable (capital gains tax, dividend income is different). So, if you are in a 40% tax braket, make $10k PROFIT on a stock when you sold it, you would pay taxes on $5k at your marginal tax rate. If you are in the 40% marginal tax rate, you would only pay $2k taxes, which works out to be 20% NOT 40%. Investing OUTSIDE an RRSP is a viable solution for some. Please see taxtips.ca for more accurate tax information

Now if you make $10k in INTEREST income for the year (like in a bond, GIC, or high rate savings account), THEN $10K would be added as income in your marginal tax rate. Thus, at a 40% tax rate, you would pay $4k in tax.

So INTEREST income should be kept inside (due to high taxes), but capital gains and dividend income can be kept outside due to tax efficiency.

FrugalTrader
http://www.MillionDollarJourney.com

]]> By: rob klein http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14453 rob klein Mon, 18 Dec 2006 03:21:09 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14453 Hey Bro, hehe, check out the distributions on wrap portfolios from quotential.....its all un realized capital gains, not realized gains every single year. cheers rob klein Hey Bro,

hehe, check out the distributions on wrap portfolios from quotential…..its all un realized capital gains, not realized gains every single year.

cheers
rob klein

]]> By: John Chow http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14353 John Chow Sun, 17 Dec 2006 19:45:14 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14353 Mayo - For most people, setting up an offshore account doesn't make financial sense, because most people have employment income. The money you're sending offshore has already been taxed. And if you bring the money back into the country to pay to you as consulting fee, then it's consider income and you'll get tax on it again. Having said that, offshoring is a great way shelter income. I may do a blog post on it in the future. Ronnie - When you start dealing in the 100's of thousands (or millions), it won't matter how elaborate it is. Even making some small changes now can have a huge effect down the road. Gary - Depends on what stage your business is in. If you're a startup then all efforts must go to the business. If your business is on solid grounds, then you can look at way to fund retirement. Mayo - For most people, setting up an offshore account doesn’t make financial sense, because most people have employment income. The money you’re sending offshore has already been taxed. And if you bring the money back into the country to pay to you as consulting fee, then it’s consider income and you’ll get tax on it again.

Having said that, offshoring is a great way shelter income. I may do a blog post on it in the future.

Ronnie - When you start dealing in the 100’s of thousands (or millions), it won’t matter how elaborate it is. Even making some small changes now can have a huge effect down the road.

Gary - Depends on what stage your business is in. If you’re a startup then all efforts must go to the business. If your business is on solid grounds, then you can look at way to fund retirement.

]]> By: Mayo http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14278 Mayo Sun, 17 Dec 2006 12:17:16 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14278 Oh and imagine how many $$ you can give to charity! ;) Oh and imagine how many $$ you can give to charity! ;)

]]> By: Mayo http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14277 Mayo Sun, 17 Dec 2006 12:16:10 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14277 I have opened Belize Ltd. company, and i won't have to pay not even a 1% tax on that revenue, you can also for almost no cost open a Cyprus, Austrian or Isle of Man offshore account, only i don't think the CC transactions are cheap, you should transfer a bundle say over 2K$-10K$ to your resident account, or spend several thousands because transfer rate is between 5 and 10€, but that doesn't matter because you will use it as a TAX shelter, and transfer monthly allowance to your resident country. You can have a registered "consulting job" in your country and pay your self what ever you wish to(based on your income ;) ). For me, i will pay only for necessary things, keep the taxes low and shelter rest of it, and when you earn 100K$, why give a government 40K$?? For that money you can X10 buy a beautiful house in Bermuda, Costa Rica, Belize or Switzerland :) I have opened Belize Ltd. company, and i won’t have to pay not even a 1% tax on that revenue, you can also for almost no cost open a Cyprus, Austrian or Isle of Man offshore account, only i don’t think the CC transactions are cheap, you should transfer a bundle say over 2K$-10K$ to your resident account, or spend several thousands because transfer rate is between 5 and 10€, but that doesn’t matter because you will use it as a TAX shelter, and transfer monthly allowance to your resident country.
You can have a registered “consulting job” in your country and pay your self what ever you wish to(based on your income ;) ).
For me, i will pay only for necessary things, keep the taxes low and shelter rest of it, and when you earn 100K$, why give a government 40K$?? For that money you can X10 buy a beautiful house in Bermuda, Costa Rica, Belize or Switzerland :)

]]> By: Gary http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14241 Gary Sun, 17 Dec 2006 07:49:57 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14241 Interesting post John. As a business owner do you feel it is better to invest in retirement now or grow your business? Interesting post John.

As a business owner do you feel it is better to invest in retirement now or grow your business?

]]> By: Ronnie http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14233 Ronnie Sun, 17 Dec 2006 06:38:45 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14233 This seems more elaborate than most people are are willing to do. Even me... laziness is the easy way. <a href="http://www.freewebs.com/borat_stalin_picture/" rel="nofollow">Visit My Website</a> This seems more elaborate than most people are are willing to do. Even me… laziness is the easy way.

Visit My Website

]]> By: John Chow http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14230 John Chow Sun, 17 Dec 2006 06:16:50 +0000 http://www.johnchow.com/the-impact-of-tax-on-investment-income/#comment-14230 There are no set limits but you shouldn't be doing it every day. Once or twice a month should be no problem, unless you really need more than $10K a month to live on. Remember, this only works if you're become a non-resident. If you don't, Revenue Canada will get the remaining taxes owed on the withdrawals at tax time. There are no set limits but you shouldn’t be doing it every day. Once or twice a month should be no problem, unless you really need more than $10K a month to live on.

Remember, this only works if you’re become a non-resident. If you don’t, Revenue Canada will get the remaining taxes owed on the withdrawals at tax time.

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