DIVIDENDS

Dividends are distributions of after-tax profit to registered owners of common or preferred shares. These are usually paid quarterly. There are many kinds of dividends but I will confine this discussion to the most common, which are eligible dividends. Dividends from large corporations like banks, manufacturers, oil and gas companies etc. are usually going to be eligible. Eligible dividends are subject to gross-up (making them bigger) offset by a dividend tax credit. We don't need to get into the mechanics of this. The important thing is that eligible dividends are taxed much less than interest income. The exact amount of tax depends on which province you live in. As a percentage of the full tax rate on interest income, they vary from 37.3% in Alberta to 61.6% in Quebec www.walterharder.ca/MarginalTaxRateCalculator.html for tax calculator for Canada). The rate for Ontario is 49.7%, so dividend income is taxed slightly less than capital gains income in Ontario. However, there is no tax deferral – the tax on dividend income is due in the year the dividends are received.