Ask your financial advisor for taxes
It’s a pity to hear that your consultant is not helpful, Louise. The financial industry confuses consumers and most financial advisers don’t really provide financial advice. They usually offer investment advice or insurance advice, often focusing on the products they have licensed to advise customers or their company to sell. As a result, their advice may be limited.
Many consultants have tax knowledge and in some cases they are well-versed. The advisor who manages your investments may not have answers to tax questions.
Owning and selling investments in Canada
How taxes are paid for investments depend in part on the type of account they hold.
- Tax Account Like tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs), they may also have tax implications on the income earned – so they may not be fully tax-cut. More content below.
- Non-tax leaked accounts You are required to pay tax on the income you receive. Your guaranteed investment certificate (GIC) may pay interest income from interest income in a taxable account every year. The interests of GIC, even complex, must be accumulated and reported for tax purposes at least annually. The same applies to stocks that pay dividends, or investments such as mutual funds and exchange-traded funds (ETFs), which earn income from the basic investments they hold.
Taxes apply only to taxable accounts when you sell an investment. Capital gains or losses have nothing to do with a tax-free savings account (TFSA) and a registered retirement savings plan (RRSP). But in a taxable account, the sale of investments usually results in capital gains or losses, half of which are taxable (capital gains) or taxable capital gains (capital loss).
Although you can sell GICs, they are usually mature. The sale of GIC does not result in capital gains, as the principal at the purchase and sale or maturity is usually the same.
Let’s take a look at withdrawals from different account types.
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Withdraw from taxable accounts
When you exit your taxable account, the withdrawal itself should not be taxable (unless it is from a company that is usually considered a personal income, whether it is a salary or dividend).
Income earned in a taxable account (whether it is interest or dividend), or profits earned from sales taxable as capital gains, are the focus of taxation. Taxes to this income apply whether the money is withdrawn or not. Therefore, the income from reinvestment is still taxable.
