In Canada, Investing, Money, Taxes, Wealth

Want an extra million just from tax savings alone?

(That’s the sexy headline.)

Let’s look at $60K from a salary versus $60k from eligible dividends

(Corporate dividends)
Salary Eligible Dividends
Income $60,000.00 $60,000.00
Taxes $17,785.00 $6,265.00
Tax Difference $11,520.00

extra paid

Now let’s max out that salary tax-efficiency

That salaried person, gets an RRSP contribution room up to 18%.

18% x $60,000 = $10,800 set aside into savings

Let’s say to lower their taxable income, they max that out:

Salary Eligible Dividends
RRSP 18% credit -$4,009.00 $-
Taxes $17,785.00 $6,265.00
Taxes after RRSP $13,776.00 $6,265.00
Tax Difference $7,511.00

You definitely drop those taxes down to $13,776 which is excellent, but you are still paying $7511 more than someone who has an income of just eligible dividends.

Let’s look at what they end up with to spend, after taxes

We are assuming the Salary maxes out their RRSP but Dividends also saves the same 18%

Salary Eligible Dividends
Income $60,000.00 $60,000.00
Taxes after RRSP 18% $13,776.00 $6,265.00
Invested $10,800.00 $10,800.00
Net Yearly Income $35,424.00 $42,935.00
Which is this net Monthly income $2,952.00 $3,577.92

On Dividends, you end up with an extra $625.92 a month, or that tax difference.

If we then assume Eligible Dividends is smart, and decides to take that tax savings of $625.92 a month and invest it instead of spending it, they will end up with an extra $1.127 million over the next 35 years at a 7% interest rate.

Now, this example is clearly not 100% solid because…


Yes. I fully recognize this. That’s the one flaw in all of this.

This chart might come in handy to show you how much you need invested just to get that income:

$60K is missing from that list, but you need anywhere from $1.2M to $2M in INVESTED CAPITAL to pay off $60K in pre-tax income, assuming the yields are 3% – 5%.

To have $1.2M to $2M saved, takes a long time.

We are looking at the tax-efficiency perspective of this all

THEN AGAIN!… this post is purely looking at ways to save and be tax-efficient, and getting off the salary bandwagon is one.

That’s the only purpose of this post, rather than how realistic it is (it isn’t. I mean, really…) so that doesn’t mean we can’t think about other ways this could be interesting for people at lower income levels than a Kardashian.

Also.. Eligible versus Non-Eligible Dividends

This confused me for a long time until I started my business, and I don’t want to get into too many tax details, but roughly speaking:

  • Eligible dividends = Likely what you are getting from your funds and stocks, as they are from big companies
  • Non-Eligible dividends = What you take out from your small business in lieu of salary

The taxes are different for the businesses depending on if they are eligible or not, and then the taxation to you as an individual also changes if they are eligible or not.

If we look at the end of retirement when this matters and we likely have a large stash of cash saved, the tax withdrawal rates from an RRSP/RRIF versus most of the income coming from dividend paying sources instead, is a difference of about 13.9% in tax savings.

There are some cons against dividend investing mostly surrounding having to research to choose the right dividend stock and betting on the ‘right horse’, to gain capital as well as dividends over the long-run while being diversified.

In light of recent times, companies like hotels and restaurants which used to pay dividends have been cutting them, and that’s another risk in investing in them.

However, there are a lot of people out there who use this strategy to great effectiveness (I know a guy who brings in 6-figures in his dividend portfolio which he lives off on), and whether you choose fully index funds or dividend stocks, or like me, 50/50 strategy to gain the best of both worlds, it is something to look into, if not for the benefits in tax-efficiency.

P.S. You can read more about my Tax Efficiency Strategy: What I plan on doing as a long-term plan to minimize taxes where I work out my retirement strategy with an angle on tax-efficiency and what it would cost.

Share Tweet Pin It +1

Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

You may also like

Previous PostSherry's #OOTD Outfit of the Day Style & Fashion Look: "The Work Appropriate Lace Look"
Next PostSherry's #OOTD Outfit of the Day Style & Fashion Look: "The Royal Bohemian Goddess Look"

No Comments

Leave a Reply

In a nutshell…

Save. Spend. Splurge.
[ wealth. style. minimalism. ]


MOST DEBT: cleared $60K in 18 months

MONEY: Hit $1M personal net worth At 36

NEW GOAL: $1M in invested assets


HATES: being late & lazy people

SOCIAL: Instagram @saverspender

DRINKS: homemade matcha lattes

SLEEPS: on a 100% cotton U.S.-made futon

WRITES: Books (also available on Amazon).

BEAUTY: swears by Paula’s Choice


…but you can read more about me , browse my index of posts, or get in touch with me, talk to me directly on Instagram, and of course, ask me anything here.

$35 The Wealth Building Tool

Like a Boss Library (Sherry’s Books)

Referral Codes

Free Money Surveys
[ Use this link ]

[ saverspender ]

Shopping Cashback
[ Use this link ]

Clothing Resale


Private Lending
[ 7b03f0 ]

No-Fee Banking
[ 32726976S1 ]

Discount Brokerage
[ o0soehds ]

Social media scheduler
[ saverspender ]

Blog Ad Network
[ Use this link ]


Save. Spend. Splurge. uses affiliate links from Shopstyle, and Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to or ShopStyle. In addition to these, any referrals on the page will result in revenue if used such as BlueHost.

In English: If you click on a link, I could get a small commission, typically a few cents. And if you use a referral code, I could get anywhere from $10 – $70 for it. Thank you for your kind support!

Also, I am not a professional investment advisor or money manager by any means.

I am just a woman who loves money, talking about money, and making money.

All opinions expressed on this blog are personal and for entertainment value. Take them with a grain of salt and always consult a professional when in doubt.