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Your
Money Matters
December
2007 Issue
Capital Gains and Your Portfolio
There
are several important tax-savings initiatives that need to be
considered and may take some planning and possibly a visit to your
tax accountant.
If
you reported and paid tax on capital gains in the past three years
and now have investments that are showing a capital loss, you may
consider selling them to book the loss. Capital losses can be
applied back three years to offset capital gains, thereby triggering
a tax refund for the previous year in which it is applied.
If
you are faced with a capital gain by selling your investments, you
may want to take advantage of a special tax break by donating stock
instead of cash to a charity. Normally half a capital gain is taxed
as income, but for any capital gain triggered by a donation of
stock, only a quarter is taxed as income.
For
new non-registered investments, make use of corporate class mutual
funds. This will allow you to move from one fund to another without
triggering a disposition for tax purposes. Any gains would be
subject to income tax only when you withdraw the investment from the
corporate structure.
Arrange
your affairs so that investment earnings are attributed to the
lower-income spouse with the lower marginal tax rate. For example,
the higher-income spouse can pay all living expenses while the
lower-income spouse’s income is directed into investments.
Capital
losses are not deductible. They may only be applied against capital
gains taxed in the preceding three years to reduce tax payable.
T-series
mutual funds are used for non-registered investments to provide a
tax-effective steady stream of income. The distributions pay out
your invested capital in the mutual fund. You do not pay tax on this
amount and you do not include it in your taxable income for the
year. When the amount of your initial capital is depleted, any
further distributions will result in a capital gain in the year they
occur.
If
you have any questions, or would like to discuss how this
information affects your individual situation, please give us a
call.
Theresa Wever and the Money
Concepts Team. |
