Prairie Stash - I understand that joint margin accounts can be tricky, but if I can show the only deposits are coming from my (non-joint) chequing account, and that invest less than I earn, can I not prove that only I made contributions and therefore all capital gains are mine alone? I.e. What RichMoose was saying in his last post. Then DH can make transfers directly into my TFSA and RRSP (we also have a spousal RRSP set up) to avoid muddying the waters with his money going through my account.
I'm really going to have to do some reading on the ACB calculations. I thought I understood it but after reading the last posts from both of you I'm not so sure. It will be a while until that becomes an issue so I will start my research now. From what I had gathered so far, I should be tracking what the purchase price is each time I buy ETFs, right? And then when I sell that price is factored in to calculate the capital gains.
Perfect strategy. You have a paper trail with clear intent.
ACB is your friend. You have it correct, you track your purchase costs and subtract that from your sale cost. I thing of ACB as "average cost" as opposed to adjusted, it makes more sense to me. Its really just the average cost of all the purchases.
Hypothetical scenario: A stock is valued at $10 in year 0 and goes to $20 in year 10 at a linear increase of $1/year. Every year you reinvest your dividends, so in the second year its at $11 when you buy, then $12 etc. Each year you pay no tax on the dividends, low income. When its time to sell your average purchase cost may be $13, so you pay gains on the $7 instead of $10 per share (30% less tax).
Capital Gains tax is calculated in a weird way, most people get it wrong. You pay your full tax rate on 50% of the gains, its not taxed at 50% of your tax rate. So if you sell $40,000 of shares at $20, with an ACB of $13 you owe tax on $7000 (do the math, make sure you see how its done), below your basic exemption for the year if you have no other income. Its tax free if done correctly. The WRONG way is to say you owe 50% tax on $14,000, that would show a tax bill :(
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/you-calculate-your-capital-gain-loss/example-calculate-your-capital-gain.htmlYou would also pull $4000 from RRSP that year,still below basic exemption, to give you $44,000 to live off (tax free). If you don't spend it all, you put the leftover money into the TFSA. If your husband is retired, he also pulls $11,000 from his RRSP (tax free) and you can live off it or save it in the TFSA. Pretty crazy
Thats why margin accounts are awesome! You can have $55,000 to live off, tax free. But, also its good to have some RRSP for the initial tax break (notice that $4000, it takes $100,000/year with the 4% rule to generate it, how much of that was tax refunds?), its the combo of all 3 account types that makes this work. The TFSA is the safety precaution, its for years with exceptional funding requirements only (i.e. you need $20k extra every 10 years).
Proportionally, you could have $100,00 in RRSP and $3-500,000 (or more) in a margin account and pay no tax depending on ACB and the dividend/gains allocations, that was a simple scenario for educational purposes. You could also have another $100,000 in TFSA, thats a lot of cash. Its hard to "max" out margin accounts as a low income earner. To me, that's why lower incomes should start them sooner, its hard to reach the threshold amounts.
Heres a good source for dividends that applies to you. In certain rare cases, your margin account may save you taxes next year. That's right, dividend in Ontario can REDUCE taxes. I'm jealous of that part.
https://www.taxtips.ca/dtc/enhanceddtc/negtaxrate.htm