TaxTips.ca - Canadian Dividends No Tax (2024)

FAQs

Is there no tax on dividend income in Canada? ›

Dividends are tax-advantaged in your RRSP and TFSA

If you hold your dividend shares in an RRSP, you won't have to pay any tax on dividends received until the funds are eventually withdrawn from the account. And if you hold your shares in a TFSA, the dividends (like all TFSA income) are tax-free, even when withdrawn.

You will report the total taxable dividends on line 12000 of your income tax return. However, the taxable amount of other than eligible dividends will also be reported on line 12010 of your income tax return.

If your dividend is eligible, you must add back 38% of your received dividend and deduct 15.0198% from the gross taxable amount as a federal dividend tax credit. Other than eligible dividends, there are those where the corporation has paid a lower tax rate.

Since U.S. dividends are not paid from Canadian corporations, U.S. dividends do not qualify for the preferential Canadian dividend tax treatment. Foreign dividends, including U.S. dividends, are subject to tax at your marginal tax rate like interest income.

Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable either while held in the account or when withdrawn.

You may be able to avoid all income taxes on dividends if your income is low enough to qualify for zero capital gains if you invest in a Roth retirement account or buy dividend stocks in a tax-advantaged education account.

A dividend refund is currently available to a private corporation that pays taxable dividends in a taxation year. The amount of its dividend refund for the year is equal to the lesser of 38 1/3% of all taxable dividends it paid in the year and its refundable dividend tax on hand (RDTOH) balance at the end of the year.

As there is no need to make payroll remittances from the corporation, a dividend can be paid out from the corporation anytime. Likewise, you won't need to register for payroll. You simply transfer funds from the corporation's account to your personal account at your discretion.

The DDT rate is 15% on the gross dividend amount as per Section 115O. i.e., the effective DDT rate is 17.65%* on the dividend amount. However, for dividends that fall U/S 2(22)(e) of Income Tax Act, the DDT rate is 30%. For example, suppose a company declares a dividend of Rs 2,00,000.

Capital gains taxes are very similar to those incurred when buying United States-domiciled stocks. The Canadian government imposes a 15% withholding tax on dividends paid to out-of-country investors, which can be claimed as a tax credit with the IRS and is waived when Canadian stocks are held in US retirement accounts.

Do I pay Canadian tax on US income? ›

As a Canadian resident, you get taxed on your worldwide income, regardless of where it came from. This means you'll have to declare all foreign and domestic income on your personal tax return.

Are foreign dividends taxable in the United States? Definitely, yes. If you are a US person, which includes citizens, dual nationals, Green Card holders, resident aliens, and domestic legal entities, you are subject to US tax on your global income. This global income includes money earned through foreign dividends.

Tax-free basic personal amounts (BPA)

This means that an individual Canadian taxpayer can earn up-to $15,000 in 2023 before paying any federal income tax. For the 2024 tax year, the federal basic personal amount is $15,705 (for taxpayers with a net income of $173,205 or less).

How dividends are taxed depends on your income, filing status and whether the dividend is qualified or nonqualified. Qualified dividends are taxed at 0%, 15% or 20% depending on taxable income and filing status. Nonqualified dividends are taxed as income at rates up to 37%.

It really depends on your unique circ*mstances. If you're planning to apply for a home mortgage or loan, paying yourself a steady salary is the way to go. If you want to keep more cash in your corporation, paying yourself via dividends is the better option.

Passive income generally includes interest, dividends, rental income and capital gains. These income sources may be subject to different tax rates depending on your income level, province or territory of residence, and how the assets are held.