Weekend Reading – Paying minimal tax thanks to dividends, early retirement police, boring money advice and more!
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
You can find my last edition here: all about some of the best wide moat stocks to own in your portfolio, stocks for an income portfolio, and why a Victory Lap retirement should be a consideration.
As part of this Weekend Reading edition…great stuff at Million Dollar Journey, outlining how to earn dividends and pay minimal tax because of it thanks to the tax-friendly treatment of Canadian dividend paying stocks.
Assuming you have no other taxable income to report, here is the paltry amount of tax you’ll tax at the following income levels by province:
Image from post, courtesy of MDJ.
As dedicated readers well know, the ability to earn income from my portfolio via dividends is also a big part of my investing approach. This post aligns very nicely with my early- to semi-retirement path I wrote about this week here:
I figure if we can earn about $30,000 per year in tax-efficient and tax-free dividend income, we should be just fine to start semi-retirement with… We’re getting there. I’ll have my income update to share for September published for you next week.
Financial Mechanic is getting tired of any early retirement police. She wrote:
“Saving up enough money to retire early is life changing, not just because you can stop working. It’s life changing because you can start working on things that matter to you. You can work when you want to work and how you want to work.”
While I fully agree with this (choices are great in life thanks to financial freedom) yet I do struggle with the transparency that some “retired” 30- or 40-somethings can’t be bothered with. Sure, the word “retirement” can mean many things to many people which is precisely why a lack of disclosure from owners about their books, blogs, or podcasts to keep your “retirement” going is both misleading and disingenuous. If you don’t need sales from your books, blogs or other to pay for your day-to-day expenses, and you’re simply working – great on you. Actually, very well done and keep it up. In some cases, that is far from the case. People are simply working and hustling a different way.
This is why, for the record, I remain a huge fan of “FI” (Financial Independence) but I dislike the marketing and noise associated with the “RE” (Retire Early) part. Also, when I semi-retire and if (?) I still make some minimum wage money from this blog, which I do, I will tell you. As always, ask me anything and I will do my best to answer your question. That is what this site is for!
I continue to enjoy the writing of Dale Roberts and his contributions to MoneySense – check out what he’s trying to make sense of this week.
Very nice of Gen Y Money to include me in her fall PF round-up – thanks!
Thanks to a recent reader question, about some good financial rules to live by, here is some money advice reminders that really never go out of style. Essential reading for millennials IMO.
One of my personal favourites from the list…
Holding any credit card debt is “bad debt”. We try and avoid credit card debt as much as possible. You should too!
Reader question of the week (adapted for the site):
Ever since I found your blog almost 2 years ago, your site is always the first place I go to whenever I need information or help with DIY investment. There is just an abundance of helpful information that got me started on my investment journey. Thank you.
Lately, I have been searching high and low on your website hoping to find some posts and/or readers’ inquiries about this question that I have. I really hope that you can answer this one soon.
I have a very small amount of USD $ (about $2,000 USD) that I originally was planning on putting into the U.S. dollar side of my RRSP, but now I’m actually thinking to move that money into the U.S. side of my TFSA.
What I found on your Dividends page about this is, there will be withholding taxes. What I want to do is to purchase U.S. equity stock(s) that do not pay any dividends. Thoughts on that? Would I end up having to pay a lot of tax from the gain inside the TFSA? Then it might not make it worthwhile to do?
Would really appreciate your feedback on this.
Great detailed questions!
First up, I must say, don’t let the tax-tail wag the investing dog. What I mean is, and what I’ve learned is, invest in a way that aligns to your goals and objectives first, then consider the tax consequences of that over other alternatives.
When I wrote this post about how I invest in taxable accounts, I shared my preference for owning Canadian stocks that pay dividends in Canadian dollars inside the TFSA because this way, I don’t have any withholding taxes to deal with.
You are correct if you own U.S. assets such as your desired U.S. equities inside the TFSA (USD $$ side) that withholding taxes may be an issue. The rationale for that is on my Dividends page above. However, you need to consider these are withholding taxes on dividends paid – not a hit on capital gains. Once assets are inside the TFSA, capital gains can occur tax-free as long as the assets stay inside the account. So, if you hold USD assets inside the TFSA that pay no dividends whatsoever then there shouldn’t be any withholding taxes on dividends to worry about.
Same goes for Canadian assets inside the TFSA – growth occurs tax-free. (Amazing right??)
So, now you have some choices don’t you!
- Put USD $$ assets that pay no dividends (there is only capital growth to occur) inside the USD $$ portion of your TFSA (no withholding taxes), OR
- Put USD $$ assets that pay dividends or not inside the USD $$ portion of your RRSP….because…regardless if USD $$ assets pay dividends or not, there are no withholding taxes for those assets inside the RRSP.
This is far from tax advice, these are not recommendations on what you should do, but again, I think you should consider what your investing goals are first, then figure out how best to optimize taxes later.
Thanks for reading!
Partnerships and Deals
Thanks again to Kornel Szrejber (from The Build Wealth Canada Show – who has Canada’s #1 ranked personal finance and investing podcast by the way) – to have me back for this weekend’s Canadian Financial Summit!
I was honoured to speak at this year’s event (yesterday) because I joined some major superstars in the personal finance and investing space. Here is just a snapshot of the experts speaking at this year’s Summit:
- Kevin McCarthy (yes, the creator of the TFSA!)
- Rob Carrick (Columnist at The Globe and Mail and Host of the STRESS TEST Podcast)
- Ellen Roseman (Former Toronto Star Columnist, Consumer Advocacy and Personal Finance Writer)
- Kristy Shen & Bryce Leung (Founders of Millennial Revolution and authors of Quit Like a Millionaire)
- John Kalos (Certified Financial Planner with Over 20 Years’ Experience. Industry Insider from Confessions of an Ex Banker Podcast)
- Lana Sanichar (Editor-in-Chief of Canadian MoneySaver Magazine)
- And many more!
This Summit is 100% FREE – for a few more hours only this weekend.
Should you want to check out all the videos/interviews after the free weekend window has passed, that’s the only time you’ll need to pay – so sign-up for the anytime, anywhere All Access Pass.
Early Bird pricing will end very soon…so consider that as you watch the Summit free now.
I appreciate the few readers who were kind enough to reply about my Summit talk and I hope you get TONS of great benefits from other Summit guest speakers as well.
Thanks to my passion for personal finance and investing, some great companies want to offer deals. As a reader, you might as well take advantage of them although there is never an obligation.
From my Deals page:
- As a My Own Advisor reader you get full-access, during your FREE trial, to all of 5i’s research reports, all the model portfolios, top companies and best ETFs to own.
- You can use my promo codes when you invest with BMO to save hundreds of dollars right away!
- You can get $50,000 managed free with ModernAdvisor.
- Sign up for commission-free investing with Questrade.
Hi Mark. I’ve been reading this post of a few months now and really enjoy it.
This past week there was an article on Dividend Income and Dividend Taxes in Canada. It was very informative. I do have a question. It was saying that if I had “just dividend income” of $50,000 and no other income, I would only pay $600.00 in tax.
The question is, what if I make approx. $30,000 in taxable income AND have dividend income of another $30,000. What are the tax implications? How much tax is due on the dividend income of $30,000…… compared to the $30,000 of taxable income.
Your taxable income is taxed at your marginal rate – a blend of federal, provincial and depends on various sources of income. Messy I know. I don’t make the rules 🙂
You can find some very helpful tax tables on taxtips.ca. It’s an outstanding site that I use often.
Not sure where you live, but let’s take Ontario. Federally, up to about $48K, you pay federal taxes of 15% although there is a personal exemption up to about $13,000 or so.
Provincially, Ontario, you see from the tables you’ll pay another 5.05% on the first $45K or so. So, total taxes owing are estimated around 20% for the first $30,000 on your “taxable” income. (Or just $6,000 give or take).
Play with this as well 🙂
The point is, overall, dividend income from CDN companies is a very efficient form of tax. So are capital gains.
Hope that helps!
I also really enjoyed your presentation at the Canadian Financial Summit. Great to finally see you and hear your voice! Keep up the good work.
Thanks for the very kind words Bonnie!
Really enjoyed your presentation at the Canadian Financial Summit this year, Mark. Your insights into retirement are so valuable. Keep up the good work!
Thanks very much! I was on your site the other day and you seem to be doing very well with your goals/October milestones! Kudos!
I also appreciate the shares on the Twitter machine 🙂
All the best and stay in touch,
Looking forward to reading your update!
Looks like you are having a good weekend so far (saw your fresh oysters pic!).
Those fresh oysters were great 🙂 Love those things!
All the best,
I came across your recent post about buying more QQQ. I was considering this for a registered retirement account. Lo and behold, this week, the QQQM was launched on the Nasdaq. A mini-me version of QQQ- same stocks, 5%age points cheaper. What would your thoughts be on this. QQQ is almost 3 times the price. Would you be a buyer today of QQQM if you didn’t already have QQQ. It started trading on Oct 13 2020.
Yes, I now own a bit of QQQ because this way, for the next X years, I don’t have to pick which tech stocks might come out on top long-term!
I haven’t heard of QQQM until now. Good, low(er) MER which is nice. I don’t really have a comment on the new fund other than it’s cheaper and less expensive and likely less liquid since not very much assets under management yet.
There is also TEC by TD Bank to consider. That might be one for me in my CDN $$ side.
How about HXQ? I thought it would be quite good for taxable account.
Ya, I’ve considered that one and I might buy it yet May for my taxable account.
Thanks Mark, great host of links as always. Thanks for the mention of my MoneySense weekly. They take a lot of time to create, so I appreciate the support. Every week, the markets create so many great headlines and stories to explore. It’s certainly never boring these days.
Nope, definitely fun times to be a writer! All the best.
Good reminder about tax on dividends. Too many hang on the fact that tax on capital gains is lower, but capital gains can disappear much more quickly than dividend income and take longer to recover.
You got it!
I disagree. With an indexed portfolio, when stocks fall you don’t sell them, or spend the dividends, but take annual distributions from bonds/cash until the market recovers. As we know dividends can fall, too – on average 50% in the depression, and 25% in 2008. As this article shows, unless you get lucky with picking stocks, most retirees are better off dealing with sequence of return risk in retirement being indexed with 60-80% in stocks and the rest in bonds or cash. You then have a more diversified and therefore less risky portfolio, which is also more tax efficient.
Thanks for your input Grant. Definitely risks with stocks let alone 100% equities/stocks in retirement. I won’t be doing that myself. I intend to have some pension funds to rely on (i.e., “a big bond”), a cash wedge (see link below) and then stocks in my portfolio. Sequence of return risk is very real and I had ERE actually on my site as well (see ignoring the 4% rule). You might enjoy my interview with him 🙂