This is a great question! So in 2024, we earned about $83,000 in distributions from our portfolio. About $33k-$35k was in the tax free savings account, so no taxes. The other $50k was from a cash/taxable account and split 50/50 on our income taxes between my husband and I. Aside from just over $20k in dividend income from our business, we had no other taxable income. Because of this, we fell into a low tax bracket and paid $0 in tax for 2024.
This was slightly different when we used to have regular income. If we still had income coming in, these distributions/payments are taxed at our marginal tax rate (added to our income tax). HOWEVER, these distributions are super tax efficient.
For example, a payment can be made up of several types of income.
1. Capital gains - if you earn $100, only 50% is taxable.
2. Dividends - these are taxed a bit higher than capital gains but depending where you live (we live in BC, Canada), you can have some pretty awesome tax credits and the tax is minimal up to around $50k I believe. (Great resource for this if you're Canadian: https://www.taxtips.ca/dividend-tax-credits.htm)
So to answer your question, if you have regular income coming in as we did for years, it is added to your taxable income if it is earned in a taxable account, BUT is taxed wayyyyy better than income from work.
So inspiring! I never thought about the strategy of looking for funds that generate such high consistent income. What an insight! Hopefully my family can apply this thinking. Thank you!
That was the exact speed bump we ran into when we started! I loved Tony Robbins' book Money: Master the Game but spent too much time trying to translate it into Canadian haha.
Thanks for the comment, Tanja :) Enjoy those money meetings!!
Wow Tanessa, I just randomly stumbled onto your Substack and my mind is blown away!! Huge congrats to you guys — you’ve achieved SO much in such a short time frame!
It’s incredibly inspiring to read the real details (especially as a fellow mid-30s living in BC!). I just wanted to pop in and say thank you for sharing & I can’t wait to read more!! You might cover this elsewhere, but I’m curious what platform you recommend for Canadian investors?
Oh how amazing, WELCOME!!! I know that mind blown feeling all too clearly, thank you so much for the kind words. That's so cool you're originally from BC! Are you from greater Vancouver area or somewhere else in this beautiful province?
I actually haven't written on that yet! (It's in the massive queue..... haha)
We have used Interactive Brokers, Questrade and Wealthsimple over the years and like the latter two the best. Happy to tell you more about our experience with them if you're interested :)
Hey Jeremie! Thank you, it feels like it came together nicely considering we had no idea exactly how it was going to happen haha
This is SUCH a good question. So, we have gone through one "pull back" so far as the market dipped from 2021 through to late 2022 and our portfolio was down $130k. All of our funds continued to pay dividends on schedule. There were a few different types of funds that we no longer prioritize investing in (called split funds) that cut dividends for 4 months during the worst of it, but that only accounted for about $400/month.
We have since recovered the $130k (and now with this market dip, lost a bit again) but here's the cool thing - we continued to get paid every single month.
While we haven't gone through a full "crash" like 2008 or 2020, these type of funds we invest in actually generate the income paid through writing covered calls so they THRIVE in volatility.
Yes, our value will be down on paper but we still get paid monthly while we wait for it to recover. We have a very long time horizon, so I'm not worried :)
This is the topic of my next diary entry I believe!
Thank you Alex! There are actually a ton of them on both the Canadian and US market. Traditional "dividend stocks" are focussed on growth with a 1-4% monthly distribution. There is an entire class of funds that are focussed on creating monthly income with less overall capital growth. They use leverage and covered calls to generate the premiums paid out each month to us :) (Usually 8-12% annually)
This article will break down our strategy and what funds on the TSX we invest in (examples). There are even better funds in the US market!
Thanks so much. That’s incredible. Never heard of this before. I’m in Australia and we’re always behind of you guys in US/CA. Doubt we have the same products here :(
I'm sure it'll make its way there! There is a Facebook group I'm a part of - the founder is a friend of mine and his YouTube channel is where we originally learned about passive income investing. There are 14k people in the group! I imagine someone in there might know about some Australian options if you put the question out to the group?
FYI - here was a response from the group that might be helpful:
"Depends on the brokers there and the type of restrictions on their accounts, if any that is - If they have international brokers they generally would give access to global markets including US and Canada"
Hey Zoe! You're right, most people DO feel weird about money. The way my hubby and I see it, we were inspired for what was doable by someone else's transparency so we decided to be that example too.
This check-in with your broker is awesome and helpful! Thank you. Do you mind sharing what broker you use so others will know?
It might be interesting to find out what funds on the Canadian or US market you are able to access and what the tax withholding details on that look like.
Yeah, our dollar is in the garbage right now too! Makes travelling much more expensive! If you have access to both markets, I wouldn't even bother with Canadian funds - their US equivalents are much better in my experience.
You never say where you got all this money to start in the first place. You had more cash in your 30s than most of us had in our 50s. Inheritance? A paid- for education and highly paid initial career?
It’s not difficult to make money with money. It’s difficult to get the initial money.
I earned it from $0, just like most people do. I paid for every dollar of my university education and saved up the entire $120,000 down payment on my town house the good old fashioned way since I was 18. I worked as a lifeguard for 8 years for $20/hour.
I didn't start my business until 2014, a year after I graduated and a year before I bought my townhouse in 2015. Even then, I didn't hit 6 figures a year until 3-4 years after I started.
I did have more cash in my 20s than most adults have in their 50s and it was because of the discipline I've had since I was a kid who started working at 15.
No short cuts, gifts, help my from parents, inheritances, high paid careers or easy way out here. Literally grit, built from the ground up.
You were paid well to start. Good for you, but most of us don’t have that advantage and therefore will not be able to do what you did.
$20 per hour as a lifeguard! HFS! I never exceeded that my entire career. That was my top salary ever. (I was the editor of a daily newspaper.) And my parents wouldn’t have been able to loan me a big chunk to buy real estate, either.
It’s great that you had certain privileges. I’m not knocking you for having them. I just would like you to consider that MOST people lack them, and without enough of a good start, they will not be able to replicate your results.
You could say I was privileged, but I also think I earned most of those privileges. I decided to get certified as a lifeguard because I KNEW it made $20/hour, instead of choosing food court or grocery store jobs that many of my peers did because I knew it made less. I knew that to afford the lifestyle I wanted, I had to make DIFFERENT choices, so I did.
Most people lack the financial education to make bigger, better choices for themselves and aren't aware that opportunities like the ones I chased even exist. That's why I'm showing up here on Substack for FREE to show people they aren't stuck with the circumstances they were dealt.
If I acknowledge that I had special handouts, which I don't believe I did, I think it is a disservice to my audience as it reinforces the belief that they can't take accountability and responsibility for changing their own lives. It has to be handed to them.
Choosing to believe that someone couldn't replicate my results because they didn't have my start is severely limiting. Anyone can do this. Maybe not as fast or in the same way, but it IS possible. I've seen it.
But, that's the beauty in it all. You get to choose how you think and we can co-exist and still hold those beliefs.
We just think differently :) But thank you for the comments! I do appreciate the conversation.
Well done and congrats! A sensitive question: how taxes affected the process?
This is a great question! So in 2024, we earned about $83,000 in distributions from our portfolio. About $33k-$35k was in the tax free savings account, so no taxes. The other $50k was from a cash/taxable account and split 50/50 on our income taxes between my husband and I. Aside from just over $20k in dividend income from our business, we had no other taxable income. Because of this, we fell into a low tax bracket and paid $0 in tax for 2024.
This was slightly different when we used to have regular income. If we still had income coming in, these distributions/payments are taxed at our marginal tax rate (added to our income tax). HOWEVER, these distributions are super tax efficient.
For example, a payment can be made up of several types of income.
1. Capital gains - if you earn $100, only 50% is taxable.
2. Dividends - these are taxed a bit higher than capital gains but depending where you live (we live in BC, Canada), you can have some pretty awesome tax credits and the tax is minimal up to around $50k I believe. (Great resource for this if you're Canadian: https://www.taxtips.ca/dividend-tax-credits.htm)
3. ROC - Return of Capital, 0% tax. There is bad ROC and good ROC - so we invest in funds that give good ROC. (Great resource: https://www.youtube.com/watch?v=hjmbVJ3NDzM)
4. Foreign Income: This is taxed as full income.
So to answer your question, if you have regular income coming in as we did for years, it is added to your taxable income if it is earned in a taxable account, BUT is taxed wayyyyy better than income from work.
Does that help?
And I supposed I should’ve led with thank you! 🙏
So inspiring! I never thought about the strategy of looking for funds that generate such high consistent income. What an insight! Hopefully my family can apply this thinking. Thank you!
Thank you Pamela, and you're welcome! Yeah, it was really new to us too when we found it. Completely different way of looking at investing.
So nice to see this content in Canadian!! Thanks for your work and sharing. You’ve inspired me to start our money meetings again!
That was the exact speed bump we ran into when we started! I loved Tony Robbins' book Money: Master the Game but spent too much time trying to translate it into Canadian haha.
Thanks for the comment, Tanja :) Enjoy those money meetings!!
Wow Tanessa, I just randomly stumbled onto your Substack and my mind is blown away!! Huge congrats to you guys — you’ve achieved SO much in such a short time frame!
It’s incredibly inspiring to read the real details (especially as a fellow mid-30s living in BC!). I just wanted to pop in and say thank you for sharing & I can’t wait to read more!! You might cover this elsewhere, but I’m curious what platform you recommend for Canadian investors?
Oh how amazing, WELCOME!!! I know that mind blown feeling all too clearly, thank you so much for the kind words. That's so cool you're originally from BC! Are you from greater Vancouver area or somewhere else in this beautiful province?
I actually haven't written on that yet! (It's in the massive queue..... haha)
We have used Interactive Brokers, Questrade and Wealthsimple over the years and like the latter two the best. Happy to tell you more about our experience with them if you're interested :)
This is incredible congratulations 👏 Great planning and most importantly great execution! Very inspiring.
How do you navigate (or will navigate) potential market crash?
Hey Jeremie! Thank you, it feels like it came together nicely considering we had no idea exactly how it was going to happen haha
This is SUCH a good question. So, we have gone through one "pull back" so far as the market dipped from 2021 through to late 2022 and our portfolio was down $130k. All of our funds continued to pay dividends on schedule. There were a few different types of funds that we no longer prioritize investing in (called split funds) that cut dividends for 4 months during the worst of it, but that only accounted for about $400/month.
We have since recovered the $130k (and now with this market dip, lost a bit again) but here's the cool thing - we continued to get paid every single month.
While we haven't gone through a full "crash" like 2008 or 2020, these type of funds we invest in actually generate the income paid through writing covered calls so they THRIVE in volatility.
Yes, our value will be down on paper but we still get paid monthly while we wait for it to recover. We have a very long time horizon, so I'm not worried :)
This is the topic of my next diary entry I believe!
I need to look more into those funds 👀 thanks for all the details!
You're welcome. If you are able to invest in the Canadian or US stock market, I definitely could point you in the direction on where to start looking!
Great article and an incredible achievement. I’m trying to understand which etfs generated this high dividend returns?
Thank you Alex! There are actually a ton of them on both the Canadian and US market. Traditional "dividend stocks" are focussed on growth with a 1-4% monthly distribution. There is an entire class of funds that are focussed on creating monthly income with less overall capital growth. They use leverage and covered calls to generate the premiums paid out each month to us :) (Usually 8-12% annually)
This article will break down our strategy and what funds on the TSX we invest in (examples). There are even better funds in the US market!
https://tanessashears.substack.com/p/understanding-our-passive-income
Thanks so much. That’s incredible. Never heard of this before. I’m in Australia and we’re always behind of you guys in US/CA. Doubt we have the same products here :(
I'm sure it'll make its way there! There is a Facebook group I'm a part of - the founder is a friend of mine and his YouTube channel is where we originally learned about passive income investing. There are 14k people in the group! I imagine someone in there might know about some Australian options if you put the question out to the group?
https://www.facebook.com/groups/249796403036406
Thank you! What’s the YT channel? I don’t have fb.
FYI - here was a response from the group that might be helpful:
"Depends on the brokers there and the type of restrictions on their accounts, if any that is - If they have international brokers they generally would give access to global markets including US and Canada"
For sure! It’s youtube.com/@passivincomeinvesting, although it’s designed for Canadians/Americans.
I’ll put the question out to the group and see what they say too!
Hey Zoe! You're right, most people DO feel weird about money. The way my hubby and I see it, we were inspired for what was doable by someone else's transparency so we decided to be that example too.
This check-in with your broker is awesome and helpful! Thank you. Do you mind sharing what broker you use so others will know?
It might be interesting to find out what funds on the Canadian or US market you are able to access and what the tax withholding details on that look like.
Thanks for being helpful :) Cheers!
Tanessa
Awesome, thanks for sharing.
Yeah, our dollar is in the garbage right now too! Makes travelling much more expensive! If you have access to both markets, I wouldn't even bother with Canadian funds - their US equivalents are much better in my experience.
Thanks for going into detail about this! I'm wondering how much did you buy your townhome for in 2015 and how much did you put down at the time?
You're welcome! I bought it for $496,000 as a new build, including 5% tax and I think I put about $120,000 down on it.
I've written a few other diary entries on the house sale and our investing timeline - happy to link them if you want to dig in. Cheers!
You never say where you got all this money to start in the first place. You had more cash in your 30s than most of us had in our 50s. Inheritance? A paid- for education and highly paid initial career?
It’s not difficult to make money with money. It’s difficult to get the initial money.
I earned it from $0, just like most people do. I paid for every dollar of my university education and saved up the entire $120,000 down payment on my town house the good old fashioned way since I was 18. I worked as a lifeguard for 8 years for $20/hour.
I didn't start my business until 2014, a year after I graduated and a year before I bought my townhouse in 2015. Even then, I didn't hit 6 figures a year until 3-4 years after I started.
I did have more cash in my 20s than most adults have in their 50s and it was because of the discipline I've had since I was a kid who started working at 15.
No short cuts, gifts, help my from parents, inheritances, high paid careers or easy way out here. Literally grit, built from the ground up.
You were paid well to start. Good for you, but most of us don’t have that advantage and therefore will not be able to do what you did.
$20 per hour as a lifeguard! HFS! I never exceeded that my entire career. That was my top salary ever. (I was the editor of a daily newspaper.) And my parents wouldn’t have been able to loan me a big chunk to buy real estate, either.
It’s great that you had certain privileges. I’m not knocking you for having them. I just would like you to consider that MOST people lack them, and without enough of a good start, they will not be able to replicate your results.
It would be a nice touch to acknowledge this.
You could say I was privileged, but I also think I earned most of those privileges. I decided to get certified as a lifeguard because I KNEW it made $20/hour, instead of choosing food court or grocery store jobs that many of my peers did because I knew it made less. I knew that to afford the lifestyle I wanted, I had to make DIFFERENT choices, so I did.
Most people lack the financial education to make bigger, better choices for themselves and aren't aware that opportunities like the ones I chased even exist. That's why I'm showing up here on Substack for FREE to show people they aren't stuck with the circumstances they were dealt.
If I acknowledge that I had special handouts, which I don't believe I did, I think it is a disservice to my audience as it reinforces the belief that they can't take accountability and responsibility for changing their own lives. It has to be handed to them.
Choosing to believe that someone couldn't replicate my results because they didn't have my start is severely limiting. Anyone can do this. Maybe not as fast or in the same way, but it IS possible. I've seen it.
But, that's the beauty in it all. You get to choose how you think and we can co-exist and still hold those beliefs.
We just think differently :) But thank you for the comments! I do appreciate the conversation.