Investments are a great way to grow your money. Depending on your risk tolerance, you can invest in everything from stocks to real estate. It is important to remember, however, that you must pay taxes on most of your investments. Failure to pay can mean steep penalties and financial fines. Here are some of the investments that have reportable income.
“Capital gains” is a term more commonly associated with real estate investments, but the Canada Revenue Agency (CRA) considers securities in the form of shares or stocks to be part of capital property. The calculation for capital property is: Sell price – purchase price – legitimate expenses = capital gains.
Capital gains are taxed (at the marginal tax rate) at 50 per cent. That means, if your capital property netted a gain of $60,000, you would only be taxed on $30,000 at your marginal tax rate. Marginal tax rates vary from province to province and from person to person, so depending on your rate, the amount of tax you wind up paying may be far less than you think.
Capital property is a great investment since the majority of your profit is yours to keep.
Canada Savings Bonds
You collect interest on Canada savings bonds until you cash them in, or when they reach their date of maturity. If your total gain is less than $50 for the year, you do not need to report it on a T5 slip. However, if your bonds gained more than $50 for the year, it is reported as income on the T5.
Guaranteed Investment Certificates (GICs)
The interest on GICs builds up slowly and you do not receive the interest until the GIC matures or you cash it out. However, you must report the interest you earned for each investment year.
Canada Revenue Agency says, “For example, interest on a compound GIC is earned on a monthly basis and is automatically reinvested, earning compound interest until the bond is cashed or matures. Interest on a compound GIC is paid when the investment is cashed, not annually…Report the interest you earned during each complete investment year. For example, if you made a long-term investment on July 1, 2013, report on your return for 2014 the interest that accumulated to the end of June 2014, even if you do not receive a T5 slip. Report the interest from July 2014 to June 2015 on your 2015 return.”
Treasury (T) Bills
T-bills usually reported as a gain or a loss on line 121 of your return.
Let AF Accounting Help
There is a push to have Canadian tax laws simplified, and for very good reason. Even the good folks at the CRA can get confused sometimes over the many forms, ambiguous language and rules. If you have investments and need help sorting out what’s taxable along with when and how it needs to be reported, contact us. We are happy to help our clients navigate through the confusion of investments and taxes.