Tax Planning Reminders

Capital Gains, Interest, Dividends | Using Your Capital Losses Wisely | Income Splitting Capital Gains | Low Interest Rates! Tax-saving Strategies | Trusts

Capital Gains, Interest, Dividends

2003 Effective Top Rate of Tax(Federal and MB)
After Tax Return on $1,000 of income
Capital Gains
23.20 %
35.08 %
46.40 %
  • Interest taxed on accrual basis
  • Dividends taxed as received (even if DRIP)
  • Capital gains only taxed when actually realized i.e.
    when investment sold

Advantages (Capital Property)

  • Tax rate substantially lower
  • Investor controls when taxable event occurs
  • Substantial tax deferral opportunity by using Buy and Hold strategy

Assume 8% Rate of Return (long term yield)
Taxpayer in Top Tax Bracket

Using Your Capital Losses Wisely

Capital Losses?

  • Generate a refund at April 30, 2004!
  • Capital losses can be carried back 3 years. A 2003 capital loss can be used in:
  • 2002
  • 2001
  • 2000
  • Losses carried back to 2000 could save you as much as 37.5¢ on the dollar vs. only 23.2¢ in 2003 and beyond.


  • Trigger loss in 2003 and CB to 2000
  • Beware Superficial Loss Rule must wait 31 days to buy back same security
  • Could buy a lone fund and then switch to the original fund after the 31 days
  • Or could sell non-registered investment and have RRSP buy back same security
  • No gains in prior years? Perhaps spouse has capital gains
  • You would sell and trigger loss
  • Spouse buys identical shares
  • Your loss denied and added to spouses ACB
  • Your spouse waits 31 days, sells security and uses capital loss
    against gains realized in prior years

Income Splitting Capital Gains

  • Invest for your children / grandchildren
    • No attribution
    • Capital Gains taxed at the Child’s marginal tax bracket
  • Sell securities with future capital gains potential to your lower-income spouse. This is onside provided that
    • Sale occurs at fair market value and either
      • Spouse pays for securities,
      • Spouse issues a promissory note and pays interest on note at prescribed rate, at least within 30 days of year end
      • CCRA prescribed rate only 3% can lock-in at this rate
    • Spouse can deduct interest expense; you must report interest income

Low Interest Rates! Tax-saving Strategies


Registered Education Savings Plans

  • Canada Education Savings Grant (CESG) supplements new contributions
    made to RESPs
  • 20% supplement – $400 maximum/year
  • Lifetime maximum of $7,200 ($400/yr x 18 years)

Discretionary Trusts

  • Formalized arrangement of providing for your children, grandchildren
  • Income attribution rules can apply for interest and dividends but not capital gains
  • Control given to the trustees to manage and direct use and investment of trust assets

Alberta Resident Trusts

  • Use of Alberta resident trustees
  • Investment income taxed at Alberta provincial tax rates
  • Complex structuring issues
  • Provincial anti-avoidance provisions