3

from this link: http://www.taxtips.ca/glossary.htm#Dividend

For an individual with no income other than taxable Canadian dividends which are eligible for the enhanced dividend tax credit, approximately $66,000 can be earned before any federal taxes are payable

So a person can have no job, just invest in market, earn a ton of money in dividends and pocket all of it without paying tax? While another person earning that same money through a job has to pay tax?

What is missing here?

4

Basically, yes. That doesn't mean that it's easy to do. The government provides a dividend tax credit since an individual takes on more risk to invest in dividend-paying corporations rather than trading their human capital for an income. Thus, for the most part, $1 earned from dividends is taxed much less than $1 earned from income or interest. Finally, note that foreign dividends are not eligible for the dividend tax credit, and are not preferentially taxed.

8

The profits that the corporation had to earn to be able to pay you "eligible" dividends for the dividend tax credit were already taxed, and at a somewhat high corporate rate, in the case of large public companies with big profits.

The dividend tax credit, which permits an individual to earn a lot from dividends and not pay any personal income tax, essentially recognizes that the profit making up the dividend was already highly taxed to begin with via corporate income tax. It aims to eliminate double-taxation.

FWIW, if you own and run a small private business in Canada and pay yourself a dividend, such dividends are considered "non-eligible", i.e. you don't get as much a benefit from the dividend tax credit, since small business corporate income tax rates are much lower.

  • But the tax was paid by the corporation, not the individual receiving the dividend. So the person receiving the dividend gets to enjoy the dividend tax free? seems it is a rule that favors the dividedn receiver and unfavors the dividend payer – Victor123 Apr 14 '11 at 22:35
  • 1
    @Kaushik Yes, the individual investor benefits at the expense of the corporation that paid the tax on the profits. Works for me. – Chris W. Rea Apr 14 '11 at 23:33
  • 3
    @Kaushik: keep in mind that the dividend receiver owns the dividend payer, and has a vote in dividend policy. – bstpierre Apr 15 '11 at 3:45

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .