Investing in the Canadian market can be a rewarding way to grow your wealth over time. However, it’s important to be aware of the tax implications that come with it. If you’re new to investing in Canada, there are several common tax mistakes you should avoid to ensure that you’re on the right side of the taxman.
Don’t miss out on tax-advantaged accounts
One of the most common mistakes new investors make is failing to take advantage of tax-advantaged accounts like Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). TFSAs allow your investments to grow tax-free, while RRSPs provide a tax deduction on your contributions, which lowers your taxable income. Both of these accounts can be vital tools for long-term tax planning. However, it’s crucial to be aware of the contribution limits to avoid over-contributing.
Don’t forget your tax refund
Many investors see their tax refund as a windfall to spend on immediate desires. However, investing your tax refund can be a wise move for your financial future. You can use this money to save for short- and long-term goals. That can be as a down payment on a house, a new car, or your retirement. By holding your investments in a TFSA or RRSP, you can enjoy additional tax benefits.
Calculating your Adjusted Cost Base
The Adjusted Cost Base (ACB) is essential for calculating capital gains or losses when you sell an investment outside of registered accounts like TFSA or RRSP. Your ACB includes the cost of the investment and any expenses incurred during its purchase, such as commissions and legal fees. Properly tracking your ACB is vital for tax time and is applicable only for investments held in non-registered accounts.
Claim your losses!
Investments come with their fair share of ups and downs, and if you sell an investment at a loss, you can claim a portion of that capital loss on your income tax return. Calculating your capital loss is straightforward and can be used to offset any capital gains. If your losses exceed your gains, you can use the net capital loss to reduce your taxable income or carry it forward to offset future gains.
Now that you’re aware of these common tax mistakes, you can be better prepared to handle your investment income during tax season. But investing isn’t just about avoiding mistakes. It’s also about making wise investment choices. One such choice in the Canadian market is investing in long-term stocks like Bank of Montreal (TSX:BMO).
Bank of Montreal, or BMO stock, is the fourth-largest bank in Canada and holds a significant presence in the United States. It offers an attractive investment opportunity for those looking to add stability and growth to their portfolio. BMO’s stock is currently trading at 11.18 times earnings and offers a dividend yield of 5.34%, making it an appealing choice for income investors.
While the stock experienced a 9.4% decline in the last year, it’s important to consider the long-term prospects of an investment. BMO stock derives a significant portion of its revenue from Canada and the United States, and it has a strong presence in commercial lending and asset management. Furthermore, it has the second-largest amount of assets under management among Canadian banks.
BMO stock’s presence in the United States is a key driver of growth, and it’s expected to continue gaining market share in the U.S. market. The acquisition of Bank of the West further strengthens its position. Additionally, BMO’s focus on exchange-traded funds (ETFs) and wealth management positions it well to benefit from the growing trend of passive investments in Canada.
New investors in Canada should be diligent in avoiding common tax mistakes while also considering long-term investment opportunities. BMO stock is a strong option for those looking to add a reliable and dividend-yielding stock to their portfolio. It may have faced some recent challenges, but its presence in the U.S. and its focus on wealth management and ETFs positions it well for future growth. As with any investment, it’s essential to conduct thorough research and consider your financial goals and risk tolerance before making a decision.