Super Quick Tax Questions!!

[Uzo]

Okay, hope someone can give me some sound advice...


I borrowed $25,000 from my Line of Credit in Jan of 2007 and invested it all into a couple of stocks....sold it all March of this year for $53,000

now on the LOC, I was paying 7% interest and I made the min payments.
out of the $53,000, I have fully paid off the initial borrowed money and all outstanding interest and now have money left over just sitting around.

How will I be taxed? i know I gotta pay taxes on the profit, but can I offset some of that profit earned with 'loss' i paid on the line of credit?

Like everyone else, I want to pay as little tax as possible and hope somebody can clarify this...


Another question is more for future reference/options, lets say I opened a trading account for a minor or person with zero earned income (unemployed) and make trades and subsequent profits within that account, how will the taxation bracket work with the above scenerio?

 

[fuji]

You list the interest paid on your tax return as an investment cost (I forget what line) and it comes off as a deduction.

You will then pay tax on 1/2 the capital gain, at the regular marginal rate (so add 1/2 the gain to your income).

Just use "ufile" or whatever online and it'll sort it all out for you step by step. Just remember to watch for where you put in the interest you paid.

 

[fuji]

As for the account in the name of a minor (or spouse, or anyone else related to you):

Assuming you gift the money to them, so that it is irrevocably theirs and not yours (ie: you can't go spend it on yourself later, you have to hold it in trust and spend it in their interest), then:

-- Any interest, dividends, or gains on money you gift to them that is invested on their behalf is taxable in YOUR hands, so if they earn $10 in interest, you pay tax on the $10 in interests

-- HOWEVER, the interest belongs to THEM. Any further compound interest is taxed in THEIR hands. So if they reinvest the $10 they earn and earn a further $1 in interest on that, the $1 is taxed in their hands.

This gets complicated fast so here is a simple way to manage it so that the record keeping is not too hard:

Open up TWO accounts for the minor. Put all the money you gift to them into the first account. Whenever any money is earned as gains, interest, or dividends, transfer that money over to the SECOND account.

Now anything earned in the first account YOU pay tax on, but anything earned in the second acount THEY pay tax on (ie: probably no tax owing).

Initially this does not sound like it helps very much but after several years you will wind up with more and more compound interest in the 2nd account and so in the long run it'll really pay off--but it'll take a few years to get going.

Obviously your goal is to invest the first account in something that pays a lot of interest or dividends, to move the money to the 2nd account ASAP.

 

[onehunglow]

As far as i know, any expenses you can tie directly into the cost of making this money is allowable. You need to speak to a CA.

Some of the above suggestions are fine but believe me when you are dealing with that kind of money, $250. for a CA will return to you 10X over.

 

[Uzo]

Thanks guys...

Yea, the CA is busy with others right now I guess from the current tax time and wont get face time until I get back into Canada sometime in July...

In terms of stocks, it was basic...nothing wow...bought Timminco a few times and as it went up and down I missed the ceiling for my sells and didnt really buy at the floor so overall did a little better than tripled my investment (i just wish I put in a lot more since its return has been exceptional)...the other was RIMM which did good aswell....where I lost money was on a bad timing wtih LULU which I held even after it hit its peak and lost quite a bit and MGI which also ate into my overall profits....if I was not greedy and sold LULU even with a small profit I would have been even better off....with MGI, its a lost cause as its worth literally nothing at this point.


Btw, I cant claim capital loss on a stock I sold as a loss right? I always get slips from TD Waterhouse but just give them all to the accountant without asking as I only get a few days/yr lately to tie up business in person as I'm overseas the rest of the time...



Anyone know any other stocks to be looking out for? I got into Visa for cheap and basically am putting all my eggs in that basket since its only going to double in my eyes within the year and really take off in two weeks or so once the earnings come out...

 

[Peter123]

Capital Losses can offset capital gains and can also be carried forward to future years and offset future capital gains

one note about your use of credit line--interest is deductible as long as you can show a fairly clear line between the borrowing and the money, and once you sold the investment if you "cashed out" but still had the line of credit debt, the interest would stop being deductible.

 

[Freedom39]

Capital gains

In reference to setting up an account for a minor.The attribution rule is capital gains is taxed in the minor's hands while interest and dividends is taxed in the donor's.