If I have $100 to invest and I have the ability to choose from the following:

  1. GIC at 3% interest
  2. Shares that I might later sell at $105
  3. Shares that pay a dividend of $3

Assuming that the period is about a year (same tax year), which would be the best option from an income tax deduction perspective? Note: this is a slight variation of this question.


Leaving aside the utility of investing in shares for a one-year term, and therefore also effectively leaving aside the risk that in #2 the shares might only be worth $95, the question then becomes, which type of income is taxed least:

  • Interest income
  • Capital Gains
  • Dividend income

The first part is simple, Interest income is fully taxed as income, so it is always the least efficient, from a tax perspective, so it is immediately let out.

For the other two, the rate at which capital and dividend is effectively taxed depends upon your tax brackets, and also province. I found this cool calculator that you can play with to see the marginal tax rate on the various types of income.

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  • I took a look at that calculator; where is the definition of the difference between "large corp" and "small business" dividends? Is the former just any company that is registered as a provincial/national "corporation"? – Jedidja May 13 '10 at 21:09
  • By my understanding "large-corp" would be normal shareholder dividends paid out by any incorporated company. Small-business would be where you are more directly part-owner, but not of an incorporated company. – sdg May 14 '10 at 17:13

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