How to go about securing the best return for your investment in Canada.
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How to handle a stock with a huge capital gain
– moneysense.ca
If you hold investments in a taxable non-registered account, then income tax considerations ought to be part of your investing decision-making process. Although capital gains tax rates in Canada are relatively low, with only 50% of a capital gain being taxable to an investor, the dollars of tax payable can grow large if an investment performs particularly well or if a stock is held for many years.
Here are five things you should think about when a capital gain could be significant, and some solutions investors can consider.
1. The break-even return for a replacement stock
The break-even return is worth considering if you are on the fence about paying tax to sell an investment.
Imagine you own a stock that you purchased for $10,000 and is now worth $20,000. There is a $10,000 deferred capital gain. If we assume you are in a 35% marginal tax bracket, the tax payable on the sale of the stock would be $1,750.
That tax would be 8.75% of the sale price in this example. That is, $1,750 divided by $20,000 would disappear to tax…
