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Dividend income pushing you into the 33% bracket? Selling shares to save a few tax dollars may not be wise
Q: The Liberals are planning to create a new tax bracket of 33% for those earning over $200,000. All my income comes from dividends so with the gross up it puts me over the $200,000 mark. Do I bite the bullet and pay the extra tax or do I sell enough shares so that with the gross up my income falls below $200,000 and maintain my existing tax rate of 29%?
—Doug, Vancouver
A: If the Liberals do indeed follow through on this election promise, you’ll need to factor in a number of variables, including how dividends are treated in the province you live in. But Cary Heller, a CPA and tax partner at Toronto’s Collins Barrow, has some overarching advice: “I am not a believer in letting the tax tail wag the investment dog.” In other words, you should make decisions with respect to your portfolio based on the strength of the companies you invest in and their expected returns. Selling stock prematurely simply to save a few tax dollars may leave you with a bad taste in your mouth, especially as you watch that stock appreciate in value after you have sold.” To maximize your savings and minimize your taxes, you would be wise to invest in the advice of a tax professional.
Bruce Sellery is a frequent guest on financial television shows and author of Moolala. Do you have your own personal finance question? Write to us at [email protected]
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