Dividend — Definition and Canadian Taxation
A dividend is a portion of a company's profits distributed to its shareholders. In Canada, dividends benefit from favorable tax treatment via the dividend tax credit, especially for eligible dividends from Canadian corporations.
Dividend Types in Canada
- Eligible dividends (Canadian): 38% gross-up, federal tax credit 15.02% + provincial
- Non-eligible dividends (Canadian): 15% gross-up, smaller credit
- Foreign dividends (US, etc.): treated as ordinary income, plus 15% withholding (USA)
- Stock dividends (DRIP): auto-reinvested, increases ACB
Taxation by Account
- TFSA: dividends 100% tax-free (but US 15% withholding lost)
- RRSP: not taxable inside (US withholding avoidable via treaty)
- Non-registered: Canadian eligible dividends = major tax advantage
Canadian Dividend Aristocrats
Canadian companies with 5+ consecutive years of dividend increases: BCE, TD, Royal Bank, CN Rail, Enbridge, Fortis, Telus, etc.
Frequently Asked Questions
What's the dividend tax credit?
For Canadian eligible dividends: ~30% federal + provincial. Reduces effective dividend tax rate vs employment income.
US dividends in TFSA: advantage?
No, loss of 15% US withholding. Better in RRSP (Canada-US treaty avoids withholding).
Dividend yield or growth?
Depends on goal. High yield (4-7%) = immediate income. Growth (2-3% yield + 8-10% growth) = long-term compounding.
Is DRIP automatic?
Yes at most Canadian brokers (Wealthsimple, Questrade, Disnat). Allows reinvesting dividends commission-free.
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