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"Scugog's Community Newspaper of Choice" | | | Dividend income provides major tax advantage Marginal Tax The concept of marginal tax is used to compare the return from investments at different levels of income. While Alberta has yet to indicate whether there will be changes to person- al taxation for 1994, all other provinces have proposed rates in excess of 50 per cent. Note that 1994 federal and provincial budgets may introduce addi- tional taxation on interest, divi- dends and capital gains re- ceived by individuals. As marginal rates climb beyond 50 per cent, we again have an envi- ronment in which taxation on your investment income takes on increasing importance. Saskatchewan and Manitoba introduced no changes to per- sonal taxation in their provin- cial budgets in 1993. No new changes for 1994 were intro- duced for Newfoundland, Prince Edward Island, Quebec or Alberta. Now Nesbitt Burns has opened its Top Marginal Rates, 1993 and 1994 1993 1994 % % Saskatchewan 52.0 52.0 Quebec 50.5 52.9 Manitoba 50.4 50.4 Nova Scotia 50.3 53.8 PEI 50.3 50.3 New Brunswick 50.7 51.4 Newfoundland 51.3 51.3 British Columbia 51.1 54.2 Ontario 50.5 53.2 Alberta 46.1 46.1 After-Tax Retention of Interest, Dividends and Capital Gains Investment income is not all taxed in the same manner; in- terest income is fully taxed, div- idends are grossed up and re- duced by a dividend tax credit and three-quarters of capital gains are included in income. The following table illustrates NESBITT BURNS OPENS NEW DOORS IN PORT PERRY money market investments, preferreds, the approximate amount re- maining after the payment of tax on $100 of interest, divi- dends and capital gains. Interest income attracts the most tax, dividends are pre- ferred relative to interest and capital gains from a tax stand- point. Since interest and divi- dends are taxed differently however, it's useful to have a method of comparing yields when evaluating alternative in- vestments. Dividend and interest income can be equated for an individual at the top marginal rate by: multiplying the dividend yield by 1.3, or *dividing the interest yield by 1.3 For example, a stock paying a dividend of 5 per cent will yield the same after-tax income as a bond paying interest of 6.5 per cent. Conversely, an interest yield of 7 per cent is the same af- Most of all it's performance that ter tax as a dividend yield of 5.4 per cent. The factor of 1.3 will vary slightly between provinc- es, however it's useful as a rule of thumb in all the most de- tailed analysis. NOTE: Dividend Income has a major tax advantage over inter- est income! Note to the table: for provinces other than Quebec, the rates of retention include an average provincial tax of 55 per cent. Capital gains realized on the sale of stocks and bonds contin- ue to be an important compo- nent of the return from invest- ments. Capital gains offer the potential for growth; and aside from dividend increases, the only offset for inflation. Courtesy of, Bob Gow, Richardson Greenshields, Oshawa $29,591 - $59,180 $58 $59,181 - $62,191 $50 $69,192 & above $46 Quebec $29,591 - $50,000 $53 $50,001 - $59,180 $51 $59,181 - $62,195 $49 $62,196 & above $47 Investment Income After Tax Provinces other than Quebec Taxable Income Interest Dividends Capital Gains $75 $69 $66 $62 $64 $61 Taxable Income Interest Dividends Capital Gains $67 $65 $64 $63 $61 $61 $60 $60 = HEAR 20 = 3 ox o oo . $ x3 ee RS es Se SR DE aE os 9 PENNY & ASSOCIATES ACCOUNTING SERVICES COMPUTER TRAINING ¢ ACCOUNTING NEW BUSINESS SET UPS ¢ TAX SERVICES CONSULTING sets Nesbitt Burns apart. Clients who have followed our advice have benefitted from our top ranked Research team's investment recommendations. common shares, new issues and mutual funds, Nesbitt Burns provides RRSP, RRIF and Portfolio Management services. (@J) NESBITT BURNS KNOWLEDGE Is POWER doors to offer exciting investment opportunities in Bank of Montreal Branch, Port Perry. Our firm has provided complete investinent services since 1912 with offices across Canada. Call Christopher Thomas today at (905) 985-3636 and discover the investment doors that are open to you. Individual investors, institutions, corporations and government rely on Nesbitt Burns. In addition to bonds, 1894 Scugog Street, Port Perry LOL 1H7 Tel: (905) 985-3636 180 MARY ST. UNIT 10, PORT PERRY *985-0712¢FAX 985-9401 THE UNIVERSAL WORLD RRSP FunDs Three Worlds Of Investing, 100% RRSP-Eligibility. Universal World Income RRSP Fund invests to pursue returns from high-quality global bond instruments. 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