Are Dividends Taxed As Capital Gains In Canada?

The Canadian average investor benefits from the country’s dividend tax rate. The reason is that Canadian dividend stocks share the company’s tax burden. You gain from the company’s financial success due to your financial investment. You also maintain the stock and future payouts. Also, this way, you are paying less tax on the dividend. This is because when the company pays out dividends, they frequently are eligible for a dividend tax credit rather than a tax rate per se.

As a result, the Canada Revenue Agency grants the corporation a tax credit for paying dividends. In brief, shareholders of Canadian dividend-paying securities may qualify for the dividend tax credit. This implies that income from dividends will be taxed at a lower level than income from interest. It can be a hassle to calculate the tax, but the dividend tax calculator Canada helps you calculate the correct tax you must pay and will help your income tax planning.

What Is A Dividend?

A corporation’s profits are distributed to the shareholders as a dividend. One can refer to a corporation’s owners as its shareholders in Canada. The Board of Directors approves dividends subject to no federal income tax in Canada. This decision is taken place via a Board Resolution.

This resolution typically specifies a dollar amount for the dividend paid per share. So, for instance, the board of directors can provide dividends of $2 per share to Class A common shareholders. In conclusion, a dividend is a money distributed to shareholders from the company’s profits per share.

A Comparison Of The Dividend Tax Credit And The Capital Gains Tax

In comparison to interest and dividends, you pay a lower tax rate for your capital gains. For instance, if you are an investor in the highest ta level, you will be taxed at 39% for your dividend income. And, for the interest income, you have to pay 53%. Regarding capital gains tax, you have to pay around 27%. To understand it better, here’s an example. If you are in the top tax rate, $10,000 in interest income would cost you around $5300 in taxes, while $10,000 in dividend income would cost you $3900 in taxes.

Capital gains tax is due to the profit you receive from selling an asset. This asset could be anything; for example, it can be a fixed asset like a building or piece of land or a financial asset like a bond or shares. You only pay a levy on a fraction of your profit, though. “Capital gains inclusion rate” determines how much you must pay.

Consider buying a stock for $500 and selling it for $1,000, for example. Therefore, you have a profit of $500. Now that this is a capital gain that belongs to you, the capital gains tax due will be applied to this gain. Dividend income in Canada is eligible for a credit, whereas interest income is fully taxable in Canada.

What is the Canadian dividend tax system like?

A dividend tax credit is used to reduce the levy owed on the gross-up portion of dividends paid by Canadian corporations. You cannot use this credit to purchase equities in the United States or elsewhere. You can only get this credit on Canadian stock accounts. Shareholders must include a declaration on their income tax return whenever they receive a dividend.

Both Provincial and federal governments levy taxes on dividends. The Canada revenue agency decides the tax rate of 9.031% for non-eligible dividends and 15.0198% for qualified dividends. Dividend payments are taxed by the government less heavily than other forms of income. It is so because the firms already pay taxes on money paid to investors in the form of dividends. As a result, shareholders’ income from dividends is taxed at reduced rates.

What Distinguishes Capital Gains from Dividend Stock return?

You can find out how much of a company’s share price is distributed as dividends each year by looking at its dividend. You can figure it out by taking the total annual dividends paid out by the business, and after that, you have to divide it by the stock price at the time.

If you look at capital gains, the gains are the increase in an asset’s value after the purchase is sold. Canadian investors benefit from capital gains since they are only subject to ordinary taxation on 50% of the revenue.

Reasons To Invest In Dividends

Some reasons for an investor to think about buying dividend-paying equities:

  • Investing in dividends provides a steady income stream. The added benefit is that you can reinvest in additional shares through a dividend reinvestment plan. As a result, this is helpful if you want a way to save for retirement and unexpected expenses.
  • You also receive tax credits on the dividend income from dividend-paying equities.

Before investing in dividend stocks, take into account the following:

  • Ensure the business you’re purchasing stock from has a proven track record of profitability and timely dividend payments.
  • Selecting a business that pays out a high annual dividend about the price of its shares is vital to get the most out of your investment. In this manner, you can estimate the possible profitable yield on your investments.
  • Additionally, keep an eye out for changes in stock price, which can provide insight into how a company’s stock will do over the long term.


Summing up, when it comes to stocks, they have not taxed the same way as dividends. Only half of the capital gains from stock transactions are subject to the nominal levy rate. However, taxes on dividends are applied slightly differently.

Remember that dividends can contribute significantly to long-term portfolio gains and give you a significant chance for tax deferral, thanks to the Canadian dividend tax credit. Dividends are a tempting method to boost profits with much less risk when considering the security of companies with dividends stretching back years. Also, there is a possibility of tax-advantaged and capital gains.

Ricardo is a freelance writer specialized in politics. He is with from the beginning and helps it grow. Email: richardorland4[at]