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Tax Comparison Interest Dividends
Investment Amount: $100,000 $100,000 Annual Income: $ 4,500 $ 3,500 Less Tax Payable @ 31.15%: - 1,402 - 1,581 Plus Dividend Tax Credit 0 + 1,318 After Tax Income: $ 3,098 $ 3,237
After Tax Rate of Return: 3.10% 3.24% Equivalent Pre-Tax Interest Rate: 4.50% 4.70% + Growth ? |
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WEALTH Matters — FALL 2008 |
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One of the most attractive features of owning dividend-paying stocks like BCE is the Dividend Tax Credit which is paid on dividend income. As shown in the table, this tax credit offsets income tax payable, thereby leaving more in your pocket! |
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The dividend tax credit Investors seeking regular income from their portfolio often choose GICs or bonds, or other fixed income investments which pay interest income. Some stocks also pay income in the form of a dividend. |
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Many of our clients use a Dividend Fund to achieve about a 3.5% dividend yield that is fully eligible for the tax credit. This is equivalent to a 4.7% interest rate, which is higher than current 5-year GIC interest rates. And the stock portfolio in the fund has the potential to produce tax-deferred capital gains on top of the yield. A Dividend Fund is a portfolio of dividend-paying stocks managed by a professional portfolio manager. Not all funds that call themselves Dividend Funds are focused on safety of principal and high yield. Page and Associates and Worldsource Financial Management Inc. can help you select the best portfolio managers to meet your income objectives. |
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