Tuesday, January 1, 2019

A $50,000 tax free annual income portfolio


If you earn dividend income from a Canadian corporation you earn a dividend tax credit. It has been known for years that you can use this tax credit combined with your personal exemption to earn an annual tax free income of around $50,000
The current market mayhem may be the perfect condition to create such a portfolio. Of course, any income form other investments must be shielded in either a RRSP or a TSFA. By the way: the TSFA annual contribution just increased to $6000.
Below is a portfolio composed of some of my favorite stocks, equally weighted, to generate such income and the investment funds required. It may surprise many how relatively little money is required. Many can just trade in their house for a smaller one to get such funds.

If you combine this porfolio with your Canada Pension and AOS (I assumed $17,600 annually) you may need to pay a small amount of tax but instead of requiring $1.2 million of investment funds you would need 'only': $755,000. I am no pension or tax expert so better check this with the CRA and/or your accountant.

Also, your portfolio would probably be inflation protected as the annual appreciation remains in the portfolio. But watch out for a market crash! Then again, by now you should love stock market volatility!

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