Canada Revenue Agency: 3 Things to Lower Your Taxes in 2020

Lower the taxes you pay to the CRA with TFSAs and dividends. Here are two dividend stocks that offer out-of-this-world total returns, including Scotiabank (TSX:BNS)(NYSE:BNS).

| More on:
data analytics, chart and graph icons with female hands typing on laptop in background

Image source: Getty Images

Think taxes are unavoidable? Indeed, we can’t evade taxes entirely, but we can certainly lower them.

Here are three things that can lower your income tax in 2020.

The basic personal amount

The basic personal amount (BPA) is increased to $13,229 in 2020 (from $12,069) for Canadians whose net income is less than or equal to $150,473 for the year.

The BPA is meant to help Canadians cover their most basic needs; it means you don’t pay any federal income tax up to $13,229 of income this year if you’re one of these Canadians!

TFSA

This year, Canadians get another $6,000 of contribution room for their Tax-Free Savings Accounts (TFSAs). If, in previous years, you made withdrawals (and did not contribute the amounts back in) or did not maximize contributions, you’d have more tax-free contribution room.

Invest your top ideas in your TFSA first before investing in your non-registered account so that you can get the tax-free compounding machine rolling.

You’ll save lots of taxes by making strategic trades and booking capital gains in your TFSA, instead of doing so in a non-registered account, since capital gains are taxed at higher rates than dividends for low tax brackets.

Of course, if you buy dividend stocks in TFSAs, you’ll shelter the dividends from taxes anyway.

Growth stocks like Tesla and Shopify are leading the roaring bull market. Hence, it’s more difficult to find stocks with great price appreciation potential, including Stella-Jones (TSX:SJ), which has a 12-month upside potential of 26%, according to the analyst consensus.

Stella-Jones is similar to a consumer staples in the basic materials sector. It provides pressure-treated wood products to railroad operators and electrical utilities and telecom companies in North America.

Essentially, Stella-Jones makes railway ties, timbers, and utility poles for these companies, as the wooden products must be replaced periodically! There’s no way around it for these companies, because the wooden products are necessary for the safe operation of their businesses.

Investors are blessed with a breathtaking buying opportunity in Stella-Jones stock at a wonderful valuation thanks to a rare change up in management: a new CEO stepped up to the role subsequent to the old CEO stepping down after 18 years.

Additionally, Stella-Jones is a Dividend Aristocrat with 15 consecutive years of dividend increases. Although its yield is small at 1.5% at writing, its dividend can grow quickly.

SJ stock’s three-year dividend-growth rate was close to 12%. Typically, stocks with high dividend growth are followed with great price appreciation!

Dividends

Dividends enjoy lower tax rates than your job’s income. They are also taxed at a lower rate than capital gains for low tax brackets. So, it’s logical to hold dividend stocks in non-registered accounts if you have maximized your TFSA for capital gains.

My most recent dividend stock buy is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which has dipped. BNS stock offers a yield of 5%, which appears to be supporting its stock price.

This is super positive, as the international bank will be increasing its dividend soon. Considering the dividend hike will drive the yield higher, it can trigger a turnaround in the dividend stock.

Scotiabank has more to offer than just a juicy dividend yield. Value and growth are also in the mix. Its focus on Pacific Alliance countries has higher provisions for credit losses and are, therefore, viewed as higher risk than its home business. Essentially, it’s taking on a bit more risk for higher growth in these geographies.

As the third-largest bank in Canada, its core Canadian business is highly profitable, permitting the bank to generate a fabulous five-year return on equity of 14%. This business alone covers its dividend with cash leftover. For that reason, investors can be confident about Scotiabank’s dividend safety.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Shopify, STELLA JONES INC, and The Bank of Nova Scotia. David Gardner owns shares of Tesla. Tom Gardner owns shares of Shopify and Tesla. The Motley Fool owns shares of and recommends Shopify, Shopify, and Tesla. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

TFSA Investors: How to Max Out Before the New Year!

Investors should try and max out on their TFSA while they can. Here are ways to do that, plus an…

Read more »

grow dividends
Dividend Stocks

Growth or Passive Income? Get Both With This Top TSX Stock

This top TSX stock offers growth, income and protection during a potential recession. What's not to love?

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Dividend Stocks

3 Dividend Stocks to Gift Your Kids This Holiday Season

Parents, don't just focus on gifts that eventually end up in the trash. Give the gift of a solid financial…

Read more »

Golden crown on a red velvet background
Dividend Stocks

The Smartest Dividend Aristocrats to Buy With $500 Right Now

These three Dividend Aristocrats offer value but also huge passive income to lock in while prices still trade so low!

Read more »

protect, safe, trust
Dividend Stocks

3 Anchor Stocks for Steady Stability if There Is a Recession

If you consider dividends an important part of your total return, three industry leaders should be your anchor stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

TFSA Investors: 2 Dividend-Paying Mortgage Stocks to Boost Your Income in 2023

TFSA investors can allocate their new $6,500 contribution limits to two high-yield mortgage stocks to boost their tax-free incomes in…

Read more »

Arrowings ascending on a chalkboard
Dividend Stocks

3 TSX Stocks With Dividends That Outpace Inflation

Investors that worry about losing buying power due to inflation could put money into these three stocks! They’re known for…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Dividend Seekers: Which of These 3 TSX Energy Stocks Is a Better Buy?

Which is a better bet among TSX energy bigwigs?

Read more »