Canada Dividend Investing Guide
the dividend investing in Canada. The eligible dividends are paid by the "Canadian public corporations" from the "income taxed at the general corporate rate" — the gross-up is 38% and the federal dividend tax credit is 6/11 of the gross-up (the "enhanced dividend tax credit"). The non-eligible dividends are paid by the "Canadian-controlled private corporations (CCPCs)" from the "income taxed at the small business rate" — the gross-up is 15% and the federal dividend tax credit is 9/13 of the gross-up. The dividend tax credit (DTC) reduces the tax payable on the dividends — the "combined federal and provincial DTC eliminates the double taxation of the corporate income". The DRIP (Dividend Reinvestment Plan) allows the "shareholders to automatically reinvest the dividends into the additional shares" — the "commission-free share accumulation". The Canadian dividend aristocrats: the "Big Five banks", the "BCE", the "Telus", the "Fortis", the "Emera", the "Enbridge", the "TC Energy", and the "Canadian Utilities".
Eligible vs Non-Eligible Dividends
- Eligible dividends: The "dividends paid by the Canadian public corporations" (the "TSX-listed companies") and the "private corporations with the income taxed at the general corporate rate". The "gross-up: 38%". The "federal DTC: 6/11 of the gross-up (20.73% of the actual dividend)". The "effective federal tax rate on the eligible dividends: approximately 5% to 10% for the middle-income earners".
- Non-eligible dividends: The "dividends paid by the CCPCs from the income taxed at the small business rate". The "gross-up: 15%". The "federal DTC: 9/13 of the gross-up (10.38% of the actual dividend)". The "effective federal tax rate on the non-eligible dividends: approximately 15% to 20% for the middle-income earners".
- Provincial dividend tax credits: The "Alberta: 10% of the actual dividend for the eligible dividends". The "Ontario: 10% for the eligible dividends". The "Quebec: 11.7% for the eligible dividends". The "BC: 12% for the eligible dividends".
Dividend Taxation by Account Type
- Non-registered account: The "dividends are taxed in the year they are received" — the "dividend gross-up and the tax credit system applies". The "effective tax rate on the eligible dividends is lower than the interest income and the capital gains".
- TFSA: The "dividend income inside the TFSA is completely tax-free" — the "no tax on the dividends and the no tax on the capital gains". The "TFSA is the ideal account for the high-dividend Canadian stocks".
- RRSP: The "dividends grow tax-deferred inside the RRSP" — the "withdrawals are fully taxed as the regular income" — the "dividend tax credit is NOT available on the RRSP withdrawals". The "RRSP is NOT the tax-efficient account for the Canadian dividends".
Dividend Reinvestment Plans (DRIPs)
- Synthetic DRIP: The "brokerage reinvests the cash dividend into the whole shares (no fractional shares)" — the "available from the most online brokers (the Questrade, the TD Direct Investing, the RBC Direct Investing)".
- Corporate DRIP: The "company-sponsored plan" — the "discount DRIP (typically 1% to 5% discount on the share price)" — the "fractional shares allowed" — the "available from the transfer agent (the Computershare, the AST)".
- DRIP taxation: The "dividends are still taxable in the non-registered account" — the "DRIP does NOT avoid the dividend tax" — the "cost base of the DRIP shares is the reinvested dividend amount".
For the dividend tax credit details, see our Dividend Tax Credit Guide →. For the TFSA and the tax-free investing, see our TFSA Guide →. For the RRSP and the retirement saving, see our RRSP Guide →.