Tax and dividend benefits of Growthworks Commercialization Fund

I would like to thank all those who have read my articles on the tax benefits of investing in TFSAs and RRSPs.

In response to several queries on the specific topic of the tax benefits of investing in the Growthworks Commercialization fund ( a labour-sponsored venture capital corporation- LSVCC- fund) for an individual earning an average income in the Ontario tax bracket of 31.15%- i.e Federal tax 22% and Ontario tax 9.15% ( see end of article for salary range and tax brackets)- please read the following. Basically, the tax credits and dividends are unaffected. What changes are the normal RRSP tax returns..

For the individual who is in the 31.15% tax bracket (for a person making a net taxable income between $43,000 and $85,000- approximate figures, for exact figures see table below) and for an average-sized investment of $5,000 in a Growthworks Commercialization Fund RRSP, we have:

                                                         Year 1                    Year 2             Year 3

Investment =                                    $5,000.00

RRSP tax savings         31.15%     $1,557.50

Extra Ontario tax credit 10%           $   500.00

Extra Federal tax credit  15%          $  750.00

Dividend                                            $  250.00              $500.00           $500.00

Total                                                  $ 3,057.50             $500.00           $500.00

Basically for an investment of $5,000 you get back in year 1:  $3,057.50;  

Year 2:  $500; year 3:   $500

Total benefit $4,057.50

For an individual in the 20.05% tax bracket we have:

                                                          Year 1                    Year 2             Year 3

Investment =                                      $5,000.00

RRSP tax savings           20.05%     $1,025.00

Extra Ontario tax credit   10%           $   500.00

Extra Federal tax credit   15%           $  750.00

Dividend                                              $  250.00              $500.00           $500.00

Total                                                    $ 2,525.00             $500.00           $500.00

Basically for an investment of $5,000 you get back in year 1:  $2,525.00;  

Year 2:  $500; year 3:   $500

Total benefit   $3,525.00


As is clear from the above two illustrations, the tax credits and dividends remain the same, only the RRSP tax returns differ depending on the individual’s tax bracket.

For more information on the Growthworks Commercialization Fund please see:

http://www.growthworks.ca/funds/saskatchewan/gw-commercialization-fund/documents/COMM.FI.ON.pdf

and

http://www.growthworks.ca/funds/saskatchewan/gw-commercialization-fund/about-the-fund.asp

Tax bracket table (taken from CRA website)

Federal tax rates for 2012

  • 15% on the first $42,707 of taxable income, +
  • 22% on the next $42,707 of taxable income (on the portion of taxable income over $42,707 up to $85,414), +
  • 26% on the next $46,992 of taxable income (on the portion of taxable income over $85,414 up to $132,406), +
  • 29% of taxable income over $132,406.

Provincial/Territorial tax rates for 2012

Ontario
5.05% on the first $39,020 of taxable income, +
9.15% on the next $39,023, +
11.16% on the amount over $78,043
 
For more info on federal, provincial and territorial tax rates visit:
 
 
For financial planning information please contact Lachman Balani at 416-902-3580 or lbalani2000@yahoo.ca
 
Congratulations to Ms. Aurora Rotairo for correctly answering last week’s question!
 
Question: When is the RRSP deadline this year?
Answer: Feb 29, 2012
 
This week’s question: (Contest open to Ontario residents only).
 
What is the Ontario tax rate for the first $39,020 for 2012?
 
Please email your answer to lbalani2000@yahoo.ca for a chance to win a prize!
 
Prize is a leatherbound business folder cum binder that holds credit cards, calling cards, documents etc. with pen, pad and a wine bottle opener!

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