11 Responses to “September 27, 2023”

1. JClay says:

   September 28, 2023 at 1:25 pm

   I have noted for some time that you use a “standard” 1.3 multiplier to adjust for the tax rate differential on dividends vs. interest income. However, as a BC resident in the highest tax bracket of 53.5%, I note that the actual multiplier is 1.3647, making dividend income even more attractive. Where does the “standard 1.3” multiplier come from? Are Ontario tax rates and/or tax treatment of dividends that much different than BC?

2. peet says:

   September 28, 2023 at 2:32 pm

   Have a look at

   https://www.ey.com/en_ca/tax/tax-calculators

   and you’ll see there’s quite a bit of variation across Canada for the “equivalency factor” for the top tax bracket. 1.3 seems like a decent compromise.

   Saskatchewan is around 1.6!

3. CaddilacMan says:

   September 28, 2023 at 2:39 pm

   Thanks Peet, that’s a useful site

4. JClay says:

   September 28, 2023 at 3:39 pm

   peet, I think you are doing the math incorrectly if you think Saskatchewan is 1.6. I calculate Saskatchewan being 1.34019 using the top tax rate for 2023.

   The equivalency factor is not simply the ratio of the tax rates on Dividends vs. interest income. It is calculated as (1-D)/(1-I), where D is the dividend tax rate and I is the interest tax rate, both expressed as decimals. So for Saskatchewan, the math is (1-.2964) / (1-.475) = 1.34019. So earning $100.00 in dividend income will leave you with the same after-tax income as earning $134.02 of interest income.

5. jiHymas says:

   September 28, 2023 at 4:35 pm

   https://www.ey.com/en_ca/tax/tax-calculators

   Thanks Peet, that’s a useful site

   It can also be found linked on PrefBlog’s right-hand navigation panel, after all the links to articles, under the heading “Calculators > Tax Calculator”

6. DR says:

   September 28, 2023 at 5:21 pm

   Jclay,
   also a bc resident and to me has seemed like a dirty secret the treatment of dividends out here. even more remarkable than the equivalency is just how much a couple, with joint accounts (or early gifting to adult children/dependents), can make without paying much if anything

7. peet says:

   September 28, 2023 at 5:31 pm

   Jclay, you’re absolutely right of course …and I wasn’t thinking, I apologize.

8. fsabbagh says:

   September 30, 2023 at 11:42 pm

   Hi DR,

   Can you please explain “(or early gifting to adult children/dependents), can make without paying much if anything” ?

   Is this for BC only? How about QC?

9. DR says:

   October 1, 2023 at 8:42 am

   yes, would be same in any province. i am not a fan of trusts as to me they are effectively “anti-trusts” (ie you set one up because you don’t trust your children!)

   so for those of us providing ongoing support to adult children, rather than give them my after tax money, we just gifted them each a small stack from which they can earn their own dividends to help with cost of living.

   no point having a lengthy conversation about pitfalls of doing so and assisting adult children however. well aware of the pros and cons.

10. MAPF Performance: September, 2023 « PrefBlog says:

    October 1, 2023 at 5:15 pm

    […] Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 390bp as of 2023-9-27 (although this is based on suspect data from BMO) (chart end-date 2023-9-8) […]

11. October 4, 2023 « PrefBlog says:

    October 4, 2023 at 9:33 pm

    […] PerpetualDiscounts now yield 7.16%, equivalent to 9.31% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.74% on 2023-9-30 (sic) and since then (by which I think they meant 2023-9-29) the closing price has changed from 13.93 to 13.65, a decrease of 201bp in price, with a Duration of 11.91 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 17bp since 9/29 [?] to 5.91%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 340bp from the 330bp reported September 27. […]