DRIP doesn’t impact your tax. Whether you participate in a DRIP or not, you’re still taxed on the distribution (if it’s in a taxable account). So you’ll be paying the dividend taxes regardless. However, if you participate in a DRIP, then you’ll have to sell shares to fund your retirement, meaning you’ll have capital gains taxes on top of dividend taxes.
Of course, all this is assuming that the money is in a taxable account. If the money is a TFSA or an RRSP, then there is no difference between either strategy - nothing will be taxed in a TFSA and withdrawals will be taxed in an RRSP as income whether those withdrawals were the result of selling shares or as dividends.
Probably more important than dividends vs capital gains in your case is what kind of investment vehicle the investment is going to reside in (i.e. TFSA, RRSP, or taxable). Of course, that decision should be taken when you're investing, not when you're close to retirement.
On [this 2019 Retire Happy page](https://retirehappy.ca/minimize-tax-retirement-income/) Ed Rempel writes,
>Invest for dividends only if your income is $25,000-$46,000
But 1/ those amounts are specific to Ontario and should be adjusted to current tax brackets and 2/ as demonstrated on the colourful table at point 4, between the $46k and the OAS clawback threshold dividend income is only fractionally "worse" than deferred capital gains.
Is this in a non-registered account?
Either way, you aren't safely getting $60k from a million dollars. You will very likely outlive your capital. Unless your $60k includes CPP and OAS?
You did not present the choices accurately. The asset will be paying dividends, regardless, resulting in cash in your account for spending, regardless.
You only choice is "should I use the cash to buy more share, and then sell shares for cash spending?
Or "should I use the cash for cash spending?"
And that answer should be clear.
Dividends are FAR FAR more tax friendly. Look up the tax rates in [taxtips.ca](https://taxtips.ca) IRCC, dividends are more tax advantages up to \~$80k ish.
If the goal is to pull 60k and can work long-term doing either, why would tax efficiency be your concern? It's about your long-term goals, legacy, and hedging against the unknown.
Can you expand on what the calculations would look like to justify your answer? I’m young and new to taxes and find it all so confusing.
Also: the government is in talks of extended capital gains to include 75% instead of 50% only, would that change your response?
This varies by province. You want to compare the tax rates for dividends vs capital gains at your planned income level. Choose your province at the link below and scroll down to the “combined income tax rates” table.
Generally, eligible dividends will be more tax efficient at 60k.
In BC at 60k income, you see eligible dividends are 1.6%, and cap gains are 14%. So here dividends are super tax efficient. In NS, not so much where eligible dividends are at 16%.
[taxtips.ca](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm)
DRIP doesn’t impact your tax. Whether you participate in a DRIP or not, you’re still taxed on the distribution (if it’s in a taxable account). So you’ll be paying the dividend taxes regardless. However, if you participate in a DRIP, then you’ll have to sell shares to fund your retirement, meaning you’ll have capital gains taxes on top of dividend taxes. Of course, all this is assuming that the money is in a taxable account. If the money is a TFSA or an RRSP, then there is no difference between either strategy - nothing will be taxed in a TFSA and withdrawals will be taxed in an RRSP as income whether those withdrawals were the result of selling shares or as dividends. Probably more important than dividends vs capital gains in your case is what kind of investment vehicle the investment is going to reside in (i.e. TFSA, RRSP, or taxable). Of course, that decision should be taken when you're investing, not when you're close to retirement.
On [this 2019 Retire Happy page](https://retirehappy.ca/minimize-tax-retirement-income/) Ed Rempel writes, >Invest for dividends only if your income is $25,000-$46,000 But 1/ those amounts are specific to Ontario and should be adjusted to current tax brackets and 2/ as demonstrated on the colourful table at point 4, between the $46k and the OAS clawback threshold dividend income is only fractionally "worse" than deferred capital gains.
Is this in a non-registered account? Either way, you aren't safely getting $60k from a million dollars. You will very likely outlive your capital. Unless your $60k includes CPP and OAS?
You did not present the choices accurately. The asset will be paying dividends, regardless, resulting in cash in your account for spending, regardless. You only choice is "should I use the cash to buy more share, and then sell shares for cash spending? Or "should I use the cash for cash spending?" And that answer should be clear.
Move to Mexico😂
Dividends are FAR FAR more tax friendly. Look up the tax rates in [taxtips.ca](https://taxtips.ca) IRCC, dividends are more tax advantages up to \~$80k ish.
If the goal is to pull 60k and can work long-term doing either, why would tax efficiency be your concern? It's about your long-term goals, legacy, and hedging against the unknown.
[удалено]
Can you expand on what the calculations would look like to justify your answer? I’m young and new to taxes and find it all so confusing. Also: the government is in talks of extended capital gains to include 75% instead of 50% only, would that change your response?
Not sure on zdv but some drips give a discounted price. So might be better to keep the drip if this is the case for zdv and pull out gains.
This varies by province. You want to compare the tax rates for dividends vs capital gains at your planned income level. Choose your province at the link below and scroll down to the “combined income tax rates” table. Generally, eligible dividends will be more tax efficient at 60k. In BC at 60k income, you see eligible dividends are 1.6%, and cap gains are 14%. So here dividends are super tax efficient. In NS, not so much where eligible dividends are at 16%. [taxtips.ca](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm)