How are dividends taxed in Canada?

Last Updated: 07-Dec-2022

Short Answer

The dividends received in Canada are deducted by tax credit before calculating the final assesable income. The grossing up rate as of 2022 is 38%.

Detailed Answer

What are dividends?

Shareholders are owners of the company as they are a part of funding of the company. When a company earns profits, it distributes the earnings to the shareholders. The amount of distribution is determined by the board of directors of the company. Dividends forms a part of the assessable income in all the countries. Let us find how it is treated for taxation purpose in Canada.

How are dividends taxed in Canada?

The Canadians are eligible for dividend tax credits. This dividend tax credits can be deducted from the tax liability on the grossed-up potion of dividends received from the Canadian companies. Before exploring the dividend tax calculation let us learn some important terms:

Eligible dividends: It is a taxable dividend, that is distributed to a resident of Canada by a Canadian company that is identified by that company to be an eligible dividend.

Non-eligible dividends: They are small business dividends or any dividends issued by a Canadian company that is either public or private, which do not qualify for the eligible dividend tax credit.

<u>User Case 1</u>

Let us assume Peter’s marginal tax rate is 33%. He receives eligible dividend of $1,000 that are eligible for tax credits. The grossing up rate as of 2022 is 38%

• The grossed-up dividend = $1,000*1.38 = $1,380.

• His tax income to be reported = $1,380 *33% = $455.40

• The federal rate of dividend tax credit is 15.0198%. for eligible dividends.

• Tax credit = $1,380 * 0.150198 = $207.27

• Tax liability = $455.40 - $207.27 = $248.13

<u>User Case 2</u>

Let us assume that the same Peter whose marginal tax rate is 33% receives a non-eligible dividend of $1,000 that are eligible for tax credits. The grossing up rate as of 2022 is the same 38% for non-eligible dividends too.

• The grossed-up dividend = $1,000*1.38 = $1,380.

• His tax income to be reported = $1,380 *33% = $455.40

• The federal rate of dividend tax credit is 9.0301% for non-eligible dividends.

• Tax credit = $1,380 * 9.0301% = $124.62

• Tax liability = $455.40 - $124.62 = $330.78

Taxation of dividends in Canada

The above-mentioned method of tax calculation for dividends in Canada are applicable only if they are received outside of registered accounts such as TFSA, RRSP, RESP etc.,

Tagged With: dividend tax canadadividend tax creditseligible dividend canadanon eligible dividend canada
Categories: Investment
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
Related FAQs
Is Wealthfront Available in Canada?

No, Wealthfront is not available in Canada. It is only meant for US citizens and not for those residing outside of the U.S., including U.S. citizens residing abroad.

Can non-residents get a mortgage in Canada?

Yes, it is possible for Non-resident Canadian citizens, Non-resident foreigners and Non-residents who are planning to move to Canada, to get a mortgage approved from Canadian financial institutions to purchase a property.

Can a Non-Resident Open a Bank Account in Canada?

Yes, you can open a bank account in Canada even though you are a non-resident, given that you are able to substantiate your identity with reliable documents such as your SIN, passport, driver's license, etc.,

Do you pay taxes on RRSP after age 65 in Canada?

Yes, if you retire by age 65 and you withdraw funds from your RRSP, such funds will be taxed at your marginal tax rate. For more details, go through the points listed here.

Which is the first company to start real-time rail payments in Canada?

Wealthsimple is the first company to get access to real-time rail payments in Canada, which is neither a bank nor a credit union. However, it is yet to go live in Canada.

What is a RESP account in Canada and how does it work?

Registered Educational Savings Plan is a tax advantageous investment plan registered with federal government of Canada. This is used to accumulate funds for higher education.

Can a Non-Resident Open a Brokerage Account in Canada?

At present, the potential to open a brokerage account in Canada, while being a non-resident is complicated and has numerous terms and conditions. This varies from broker to broker. To become savvy in this topic, continue reading.

Can a Non-Resident Open an Investment Account in Canada?

No, you cannot open an investment account in Canada while you are a Non-resident, the exemption being - Tax-Free Savings Account (TFSA). Having said that, you can continue to hold the investment accounts that you once opened while you lived in Canada.

How to start investing with 100 dollars in Canada?

There are many ways in which you can invest $100 such as robo advisor platform, fractional shares, ETFs, managed funds, crypto currency, etc. Let's discover and discuss different ways of investing an amount of 100 CAD in Canada.

Is Virtual Brokers good?

Like every other trading platform Virtual Brokers has its pros and cons. Read more to find out if the platform suits you. See if Virtual Brokers is good.