Understanding the different ways investment income is taxed can help protect you from higher tax payments.
Gains are calculated by taking the sale price and subtracting the adjusted cost base, or the amount you paid for the security, as well as any fees or commissions incurred to buy it.If you've sold securities at a loss, use those amounts to offset capital gains in the current tax year or dating as far back as the three previous years. Losses can also be carried forward indefinitely to offset future gains.
All of the interest earned is reported on the investor's return and taxed at their marginal tax rate, making it one of the least tax-efficient investments, unless they're held in a registered account such as a Tax-Free Savings Account.Taxes on dividends are calculated differently depending on whether they're eligible or non-eligible .
Foreign dividends are generally fully taxed on your return, but investors may be able to claim a tax credit if the foreign country withheld tax on the payout.Tax savings are a key consideration when deciding which investments are best held in various accounts, but it's by far not the most important factor, according to one financial planner.