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I am starting to invest in DRIPs, as I believe they would be the best investment for me at my current point in life. I am reading some other questions here, and people are stating that the income, even if it's being re-invested directly to the fund, that I need to pay tax on it. Understandable, it's a form of income.

Where can I get information on how much tax is going to need to be paid on my income from DRIPs, and do I just get the information from my transfer agent?

Currently, I earn $55k in employment income, and I reside in B.C. The income will not be in a registered account.

  • If you hold them in registered accounts, it doesn't matter. Otherwise it's the ACB calculation you need to be asking about. You'll get tax slips but it's up to you to make sure you actually receive them and file your taxes properly. – brian Jun 2 '14 at 1:58
  • @Brian alright, but I'm trying to see if it's worthwhile. I heard rumours I pay almost no tax on it for the first 50k, but I'd like to know for sure – Canadian Luke REINSTATE MONICA Jun 2 '14 at 2:01
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    You need to say what type of account. If you want to know taxation ,the province really matters along with the amount of other taxable income you have and any benefits that depend on your income. – brian Jun 2 '14 at 2:03
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You can see the marginal tax rate (exclusive of benefit reductions) at this page. Look at the line over $43,953 (for 2014). It says 6.46%.

You will be getting T-slips with the amount of dividends received along with an increased amount of income to include on your taxes. This reflects the before tax (gross) amount the company earned. It's called 'grossed up amount'.

Later on in your taxes, you will deduct from the tax you owe, an amount that represents the amount of tax paid by the company. This is the dividend tax credit.

All these amounts will be on your T-slips but you should verify them and also insure that you receive them. If they get lost in the mail you still have to report the income.

A much harder task will be for you to keep track of the ACB (Adjusted Cost Basis). When you sell shares, you must know what you paid for them. Since you'll be buying shares 4 times a year for every company (or 12 times now for most ETFs), that's a lot of paperwork.

Of course, in a registered account you don't need to worry about any of this.

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