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do dividends contribute to tfsa
June 25, 2018
7:36 pm
undersc0re
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tfsa seems to be an awesome way to invest and I want to invest in Canadian stocks that pay great dividends. I have a question, does the dividends that pay out just go in your tfsa account and not count as any contribution to it, go in as cash and from what I read they are tax free? I am just making sure I make the right decision as this part did not seem clear to me, thx. Also I am brand new to investing and want to start right.

June 26, 2018
4:01 am
Bill
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Any income earned within a tfsa is not taxed so make sure dividends are paid into the tfsa - which would normally happen when you buy shares within the tfsa account.

June 26, 2018
4:50 am
snoopy
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If you earn redivide income in a tfsa you will not get the dividend tax credit . That is a consideration . if you have both interest income and dividend end income . maybe the interest income might be best kept in the tfsa . if you have dividend income alone . I am not sure you want a tfsa ?

June 26, 2018
5:22 am
Top It Up
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From the internet - which I think clears up any misunderstandings when it comes to tax matters -

Let’s start with one of the most common misunderstandings: that holding Canadian stocks in a TFSA (or an RRSP) means you’re forfeiting the dividend tax credit. Canadian dividends are taxed favourably: an Ontario investor who earns $50,000 would pay just $64 in taxes on an additional $1,000 in Canadian dividends after accounting for the tax credit. That same $1,000 in interest income would come with a tax bill of almost $300. That’s why, if your TFSA and RRSP are both maxed out, it often does make sense to hold Canadian stocks in a non-registered account and use the TFSA and RRSP for assets that are taxed less favourably.

However, if you have plenty of room in your TFSA, there’s nothing wrong with holding Canadian blue chips there. It’s true you won’t be able to claim the dividend tax credit, but that’s because you’re paying zero tax on the dividends already. Holding your stocks in the TFSA also means all the capital gains will be tax-free.

June 26, 2018
5:43 am
Bill
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snoopy, to complete your view you also need to note, as the last line of Top It Up's reply indicates, that you can avoid the capital gains tax inside the TFSA.

I suppose also that using DRIPs, instead of having the dividend income received in cash, within the TFSA might be another idea to consider.

June 26, 2018
7:03 am
snoopy
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In the example above topup comment

It speak of the income of the person . the dividend end tax credit is more valuable to people in lower tax brackets . as to if you should be looking for divided ends or capital gains to get the most after tax income from an investment it depend on many things included if you have maxed out the divided end tax credit , and what bracket you are in and which will produce the most after tax income ,

As to bill if you but prefer shares like BCE.PR.Y you can get divided end with little risk if large capital gain or losses

June 26, 2018
2:24 pm
Norman1
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I don't think that's the dividend tax credit.

Currently, the federal portion of the dividend tax credit is 15.0198% of the taxable amount of eligible dividends. In Ontario, the provincial portion is 10% of the taxable amount of the same.

There's no cap on the dividend tax credit and the rates are the same for everyone in a province, regardless of income.

Preferred shares are shares and have had significant capital gains/losses.

Those BCE Series Y floating rate preferred shares are now trading around $20.50. If they were purchased at $25 when issued, that's around a 18% loss. sf-frown If purchased in early 2016,when they traded around $12.50, one would be very happy sitting on a 64% capital gain. sf-laugh

June 26, 2018
2:56 pm
Londonguy
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Holding your stocks in the TFSA also means all the capital gains will be tax-free.

This is true, and it's also true that any capital losses you might incur holding stocks inside your TFSA are similarly not deductible either. People tend to forget that side of the coin before making TFSA investment decisions

The point being, aside from doing your normal investor due diligence, you need to be extra choosy about the type of stocks you put inside your TFSA, and when it comes to dividend paying stocks, you also especially need to consider that the market value of those stocks is probably going to fall if interest rates rise, and you can get trapped holding them the same way that you'd get trapped if you're in a bond fund. The inability to write off any capital losses will just add to the pain

June 26, 2018
3:15 pm
undersc0re
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I am interested in buying 5 stocks times $10,000 each and I want to diversify buying a bank stock, railway stock, energy, retail, gold. I would try to find best paying dividend in case I have to hold onto it due to price drop at least I have something from it, then if other stocks go up more than 10 pct cash out and grab a different stock. I know it is a bit of a dream but that is my basic plan in the tfsa, my income is 125000 ish. Next year I will buy another $10,000 stock inside tfsa, I will do my best to watch and make a good decision on one by then hopefully.

It was kind of unclear on where the dividends went and how they were dispersed as a contribution or just part of gains like capital gain in there and treated the same. So as far as I understand now it is paid inside the tfsa and there is no need to declare it in any way under any circumstance.

Thanks for all the help, hopefully my new job and my chance to invest pays off in the end. I figured this is the best way to start!

June 26, 2018
4:16 pm
snoopy
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Norman1 said
I don't think that's the dividend tax credit.

Currently, the federal portion of the dividend tax credit is 15.0198% of the taxable amount of eligible dividends. In Ontario, the provincial portion is 10% of the taxable amount of the same.

There's no cap on the dividend tax credit and the rates are the same for everyone in a province, regardless of income.

Preferred shares are shares and have had significant capital gains/losses.

Those BCE Series Y floating rate preferred shares are now trading around $20.50. If they were purchased at $25 when issued, that's around a 18% loss. sf-frown If purchased in early 2016,when they traded around $12.50, one would be very happy sitting on a 64% capital gain. sf-laugh  

When the dividend tax credit is grossed up and then taxes it will be different
Depending on what tax bracket you are in . if it is grossed up and you are taxed in the lowest income bracket you will get more after tax money than if you were in the higest income bracket

And I believe that it is a refundable tax credit so if you are under the 11,000 basics personal expectation they might even refund the tax if you have paid no income tax

June 26, 2018
4:22 pm
Top It Up
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Londonguy said

This is true, and it's also true that any capital losses you might incur holding stocks inside your TFSA are similarly not deductible either. People tend to forget that side of the coin before making TFSA investment decisions. 

Playing the stock market and the bond market is not for the faint at heart types - it's all a learning curve and one would hope that individuals would know the pros and cons of placing those items in their registered accounts, before doing so.

On a side note - why would anyone ever invest in a stock that was going to do anything other than go UP in value?

June 26, 2018
5:05 pm
Loonie
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It kind of depends on how much money you have. If 50K in the TFSA is all you have, then you shouldn't put it in stocks of any kind because all stocks are subject to volatility. You can keep it in TFSA as rainy day money, but in a savings account or cahsable GIC.
No job is so secure that you can't assume you may not need that cash at some point - especially with the unknowable implications of decision of Trump.
You should not look at dividends as a gold-plated guarantee either. Dividends of Cdn blue chips tend to remain impressive but they are calculated as a percentage. You need to ask, a percentage of what? And how stable is that "what"? Other people on this board will know the answer to this immediately, but I don't as I don't buy them. My understanding is that it's a percentage of the market value of the stock, which fluctuates.

Personally, I would never put gold stocks in a TFSA, even if I were inclined to buy them. Gold stocks are extremely volatile and are best held outside of a TFSA where you can take capital losses if necessary. And I would not put them in my rainy day fund. You can lose your shirt on gold stocks, and many have. It's also quite difficult to pick a good one. If you MUST have exposure to gold, then make it through an ETF - and those too must be looked at very very carefully. 20% is far too high a percentage to have in gold if the TFSa is all you have. 5% is plenty, even in a larger portfolio; 10% tops.
You should probably consider a communications stock instead of the gold - e.g. Bell, Rogers, Telus etc.

"Retail" is also a difficult category. What did you have in mind?

I can't emphasize enough that you need to have a very solid understanding of these companies before you invest in them.

To be perfectly honest, I think you have stars in your eyes about dividends. It's not that simple. You should adjust your expectations, and be more prudent. Don't rest all your hopes in dividends.

June 26, 2018
5:18 pm
Top It Up
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Loonie said

My understanding is that it's a percentage of the market value of the stock, which fluctuates.  

I have 2 preferred bank stocks in my RRSP and the dividends are a set percentage of the initial stock offering price of $25, paid quarterly. I have a 3rd stock, a transportation stock that just pays a cash value of $0.04/per share/per month and on 10,000 shares that adds up rather nicely each year.

June 26, 2018
6:06 pm
Bill
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Dividends for common stocks are not based on a % of fluctuating stock prices. Dividends are a certain dollar/cents amount per share, no matter its value, usually paid quarterly, and there are many Canadian blue chip stocks that have a long history of paying out steadily increasing (usually annual increases) dividends.

I'm not convinced getting advice re stocks on a site dedicated to ultra-savers, some of whom shun stocks because they are not "guaranteed", is the best idea for potential investors.

June 26, 2018
7:04 pm
undersc0re
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I am still watching and reading tutorials, no hard decisions yet, banks are probably better than gold though lol. As for retail, not sure, something like dollarama or canadian tire seem stable.

As a newer investor is it that bad to do tfsa, seems like some say I will fail and I won’t be able to claim the loss when it inevitably happens! I will take these suggestions and make a very careful final decision before investing, I plan on keeping it all in there to compound for about 15-16 years. I just want to get the tfsa going for now. A little scary doing a self directed tfsa with all that money, and a process to get it all going hopefully where I do not lose my shirt. I think I will be safe as long as i stay away from crypto currency and other unstable things that could go bust.

June 26, 2018
8:43 pm
Londonguy
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Top It Up said

On a side note - why would anyone ever invest in a stock that was going to do anything other than go UP in value?  

I agree, EVERYBODY thinks the stock THEY picked is going to go up, just like they believe that the horse they picked is going to win the Queen's Plate.

Who knowingly buys something in the expectation that it might decline in value? I guess it depends on how broad your scope of "value" is, e.g. if I could buy something that paid a 15% dividend but at the same time declined in trading price 5% per year, I'd still be ahead by 10% per annum -- some of the older oil & gas income trusts used to trade exactly like that, but it's definitely a rarity.

I was only trying to point out that we are still not far from historic lows for interest rates, and market recognition of a reversal of that trend (even a comparatively small one back to "normalized" levels) would have a profound negative impact on the trading value of higher yielding shares as the market reprices them to reflect a different interest rate dynamic. It's a real risk that many even experienced people don't pay enough attention to IMO, probably because they've gotten used to these many years of absurdly low rates, or in the case of younger investors, perhaps because they've never known anything different.

A similar shock also awaits people carrying huge mortgages (especially variable products) if they don't have the resources to pay the balance down or the income to make significantly higher payments as their interest rates adjust upward. That's what's behind the new stress testing that mortgage renewals are now subject to, but we won't really know until after a crisis occurs whether that was a sufficient defensive measure on the part of the banks.

June 26, 2018
8:47 pm
Loonie
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Bill said
Dividends for common stocks are not based on a % of fluctuating stock prices. Dividends are a certain dollar/cents amount per share, no matter its value, usually paid quarterly, and there are many Canadian blue chip stocks that have a long history of paying out steadily increasing (usually annual increases) dividends.

I'm not convinced getting advice re stocks on a site dedicated to ultra-savers, some of whom shun stocks because they are not "guaranteed", is the best idea for potential investors.  

Thanks for the clarification. I did say that someone would correct me and that I don't know the answer for sure. so no harm done and now we all know the answer. I think I was confused by the fact that increases in dividends are often announced in the media by percentages.

However, the questions raised by someone who does not invest in such things are valid, regardless. Other information can be gleaned elsewhere.
OP came to this site, probably knowing that much of the advice here would be conservative. The fact that he/she did not know whether the dividends in TFSA would be taxed suggests a very limited knowledge of financial planning, and, thus, a vulnerability which I tried to address.
It's interesting that you only pounced on the comments I made with which you could easily disagree - and those are the same ones that I said I wasn't sure about. None of the rest of you keeners bothered to advise OP of the issues I have otherwise raised.
I did not advise OP to shun stocks, but to be more prudent about choices. I recommended she/he include a market sector which had been ignored in their plan. Those of us who have thought about them and decided, at this stage of our lives, to avoid stocks, still have useful things to say, but there is tons of more gung-ho advice elsewhere if that's what you're seeking.

June 26, 2018
9:20 pm
Joe
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Top It Up said

On a side note - why would anyone ever invest in a stock that was going to do anything other than go UP in value?  

I guess you have never heard of shorting a stock.

Tangerine....Canada's best bank. LBC.............Canada's 2nd best bank.
Hubert.....worst bank in Canada.

June 26, 2018
9:23 pm
swan
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I have invested in GIC stock real estate all my life so have both my parents and my grand parents and great grand parent I have prepared and present and won court case and other in my family have as well .I often make the mistake that other here I just like . maybe other could tell me of themselves so we know were the views come from

Any CA here ? , stock broker ?

June 26, 2018
9:29 pm
Loonie
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undersc0re said
I am still watching and reading tutorials, no hard decisions yet, banks are probably better than gold though lol. As for retail, not sure, something like dollarama or canadian tire seem stable.

As a newer investor is it that bad to do tfsa, seems like some say I will fail and I won’t be able to claim the loss when it inevitably happens! I will take these suggestions and make a very careful final decision before investing, I plan on keeping it all in there to compound for about 15-16 years. I just want to get the tfsa going for now. A little scary doing a self directed tfsa with all that money, and a process to get it all going hopefully where I do not lose my shirt. I think I will be safe as long as i stay away from crypto currency and other unstable things that could go bust.  

There are no real losses until you sell the stock or it goes belly-up. I think a horizon of 20-25 years is more realistic to avoid losses. on individual stocks. I know someone who bought a gold stock on broker's recommendation about 25 years ago or so and is still looking at a loss of about 80% (not including inflation) as the stock in question has not come back up yet. As he bought it inside a registered plan, he cannot get any compensation for losses, so he's still waiting because it's not worth selling. He's afraid to sell it now anyway in case gold is about to take off in these uncertain times.

It may seem like a lot of money , but, really 50K isn't that much money if it's all you have. In today's volatile Trumpian economy, I think everyone would be well advised to have two years of funding as emergency money which is accessible if they do not have parents to rely on as back-up.

TFSAs are very useful. It's a question of how you use them.
I will assume you have an additional 50K saved for emergency use, making a total of about 100K savings. In that case, I would suggest you put 50K into TFSA in savings account and one year GICs, about equally divided, even if it completely boring. This will give you the best tax advantage for your emergency funds as interest gets fully taxed otherwise

You could then invest the other 50K in either a selection of stocks such as you have named or into ETFs or low-cost mutual funds (see Canadian Couch Potato site for suggestions). With the Canadian dividend-producing stocks, you will then be able to benefit from the dividend tax credit, which is quite advantageous, especially to lower income people. Capital gains will also get better treatment tax-wise; and capital losses can also be claimed, should this be necessary.

If, on the other hand, all you have is 50K and no other emergency back-up, I would not recommend any stocks , ETFs or mutual funds at this time. Wait until you have more money, and put what you have into TFSA as described above. Do not consider real estate as an emergency source of funds.

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