If you keep up with financial news or investment strategies, you’ve probably heard the terms ‘tax-efficient investing’ and ‘investing for income’ time and time again. More than just buzzwords, investing for income is something that Mailey Rogers Group considers in every wealth management plan. We strive to minimize risk and maximize returns for our clients, often by creating income from low-risk investments. It certainly sounds appealing – but what is it exactly, and how does our team determine the best course of action for each client?
Put simply, investing for income is the act of investing savings with the intention of generating income through interest, dividends or capital gains. However, not all income is equal – and that’s why we look at tax efficiencies in order to determine the best possible return. Let’s look at an example.
When we hear that an investment had a 2016 return of 5% – is that all we need to know?
No. We need to know what type of return it was – interest, dividend, or capital gain. This is critical, as it will determine how much of that return you get to keep!
For simplicity, let’s look at just three tax brackets in B.C. for 2016, along with the tax rate paid.
Combined Federal and B.C. Tax Brackets and Tax Rates
|Regular Income (Interest or Employment)||Capital Gain||Eligible Canadian Dividend|
|$77,797 up to $89,320||31.0%||15.5%||8.25%|
|$89,320 up to 91,831||32.79%||16.4%||10.72%|
|$91,831 up to 108,460||38.29%||19.15%||18.31%|
A B.C. resident with a 2016 taxable income between $77,797 and $89,320 receiving $1,000 distribution gets to keep $690 if it’s interest income, $845 if it’s capital gains, and $917.50 if it’s dividend income. That’s a significant difference! This is why we look at tax-efficient investment options when planning for income generation.
You may also hear the term ‘interest equivalent yield’. Using the above example:
|Type of Return||Yield||Interest Equivalent Yield|
In other words, you would need an interest rate of 6.65% to equate to the after-tax return of receiving a 5% dividend.
Mailey Rogers Group always seeks the most tax-efficient return when assisting our clients with security selection in taxable accounts. It’s imperative that we approach each portfolio individually, as no two clients have the same needs, goals, or personal situation. By understanding the impact of taxation on various investment options, we can determine the best strategy for your investments. And, by knowing our clients and their families on a personal level, we are able to offer an exceptional quality of care. It’s all a part of our client commitment, which is rooted in integrity, personalized wealth management, and achieving your family dreams.
The new Federal Budget is coming out next week, on March 22nd, so these numbers could all change in a flash. Of course, Mailey Rogers Group is prepared for this, and is ready to adapt investment plans as required to maintain optimal returns for our clients. We will be emailing you a complete budget summary following this announcement – keep an eye on your inbox!
Also, please mark your calendars. On the evening of May 10th, Mailey Rogers Group will be hosting a women’s financial education seminar called ‘Investing 101’. This social event will be led by Brie Fraser, Wealth Advisor at Mailey Rogers Group. Brie will be discussing elements of investing for income, including tax-efficient investment strategies. More details will follow!