How are Stocks Taxed?
You should talk to your financial advisor or accountant for more in depth information (again read my Legal Disclaimer and About page) but the basics for us Canadians are as follows:
1. Stocks held in a Registered Account (RRSP, RESP or RRIF): No tax is payable on the earnings while the money is held in the registered account but once it is taken out, it is fully taxable. With a TFSA, no tax is payable while the money is in the plan or when you take it out. What exactly an RRSP or TFSA is will be discussed in a later post but I wanted to get this basic tax info out first!
2. Stocks held outside of a Registered Account (RRSP, RESP or RRIF): Dividend money you have earned is taxable in the year in which you receive it, even if you reinvested the dividend (DRIP). If the dividend is from a Canadian company, talk to your accountant about the dividend tax credit. As for capital gains, you will pay tax on any gain you realized over the year by selling a stock for higher than you paid for it. You will pay tax on 50% of the capital gains. So if the capital gain was $1,000, you will only pay tax on $500 of that amount. Capital losses can be used to offset capital gains within the current year, up to three years prior or carried forward depending on the situation.
Again, these are the very basics and individual situations will vary.