When a company issues bonds and debentures, how does it affect its net profits after tax?
Debt issuance has an immediate effect, but not on the income statement. It would affect the balance sheet instead, because liabilities would increase. Over time, as the company pays interest on the new debt, it would incur an expense that reduces profits. This interest expense is tax deductible, but the tax break does not offset the entire cost. In some cases, earnings could rise. Examples include: • If the new debt replaces older, more expensive debt, or • If the company borrows at, say, 5% and generates a return higher than that after investing the money in business operations. What investments receive better tax treatment outside a registered plan like an RRSP: dividend paying stocks or dividend mutual funds? Investors get tax breaks on both dividends and capital gains in non-registered accounts. This applies both to stocks you buy from a company directly and mutual funds. When you by stocks, you can save money on fees if you are disciplined. You would also have control over the tim
