How Dividends Are Taxed in Canada | How to Live off Dividends Tax Free

Did you know that Canadian dividends can lower your taxes? Yes, you heard that right. You can get paid to own dividend stocks and reduce your tax bill on other sources of income. This is like getting free ice cream and enjoying it too. Questions for me? Ask me here: asqme.com/@DanishGhaziCPA
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Canadian dividend-paying stocks give you a hefty tax break when you hold them outside of your tax-sheltered accounts like the TFSA, RRSP, FHSA, RRIF to name a few.
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0:00 Why do you receive Dividend Tax Credit?
3:36 Calculating Dividend Income With Gross-Up
4:30 Dividend Tax Credit Examples
8:20 How to save on Taxes with Dividend Tax Credit
Imagine earning $1,000 in dividends and paying less taxes on everything else. Sounds too good to be true, right? Well, that’s exactly what happens if you earn $25,000 a year in Canada. You pay zero tax on your dividend income, and you even get a tax break on your other income. This is called a negative marginal tax rate, and it’s a dream come true for any accountant. Compared to interest income, you save $240 in taxes by earning dividends.
The government recognizes that it’s unfair to tax the same income twice. So they give you a break on dividend taxes to offset the taxes the corporation already paid. As a result, you should pay roughly the same tax as if the income had come straight to you in the first place, without passing through corporate hands.
Do you know the difference between eligible and other than eligible dividends in Canada? If you own shares of Canadian corporations, you may receive dividends from them. But not all dividends are created equal. Depending on the type of dividend, you may pay taxes on your personal tax return. In this video, I will explain how each dividend type affects your taxes, and how you can take advantage of the dividend tax credit to reduce your tax bill. Whether you are a beginner or an expert investor, this video will help you understand the tax implications of dividend income in Canada.
Eligible Dividends: The corporation must designate the dividends as “eligible” which means that they paid higher tax rates. In return, you will pay more taxes and receive a higher tax credit.
Other Than Eligible Dividends: The corporation must designate the dividends as ‘other than eligible” which means that they paid lower tax rates. In return, you will pay less taxes and receive a smaller tax credit.
Disclaimer: This channel is for education purposes only and opinions expressed in this video are based on personal research and should be treated as such. These are not instructions, suggestions, nor directions as to how to handle your money. The facts and figures presented in this video are up-to-date based on the recording. These may have changed based on when you watch the video, please, always do your own due diligence!
#taxesincanada #canadafinance #taxplanningstrategies

[@DanishGhaziCPA]

Can you build Generational Wealth with Dividends? --> kzbin.info/www/bejne/lZLYpHWpiLOljac

[@lynnecastonguay6943]

THANK YOU SOOOOO MUCH!

[@billdickey7064]

Great video, I finally have the answer as to how ineligible dividends are taxed in Canada, Thank you

[@DanishGhaziCPA]

Glad it was helpful!

[@mikel4035]

great explanation

[@joefalcone4762]

Great information. Thanks.

[@DanishGhaziCPA]

Glad it was helpful!

[@ashihtaka]

Danish, one thing to note is the examples you shared only apply to scenarios with Fully dividend income in low tax bracket. For example of earning $110k into wealthsimple calculator in Ontario: if you plug 100k employment income + 10k capital gains, then total tax is $28,056 if you plug 100k employment income + 10k eligible dividends, then total tax is $28,294 You are actually paying more tax on dividend income than regular capital gains.

[@khan200us]

Hi Danish. I have tax and setting up offshore trust related questions. How can I email you? Please share. Thank you and keep up the good work.

[@DanishGhaziCPA]

Feel free to reach out on the matter here: asqme.com/@DanishGhaziCPA

[@PaulKing-in2kv]

I thought your explanations were very useful, and made a complicated subject as clear as could be. I particularly enjoyed the graphic at the end showing tax paid from various types of income at $50K and $100K. One thing missing from that chart is withdrawals from a RIF and RRSP. I know they are 100% taxable, but would they be the same result as Interest income, or salary or ... ? Would you know how to calculate the %? I would also note that wealth simple's calculator does not include that type of income in their calculator.

[@DanishGhaziCPA]

Thank you for your positive feedback! I’m glad you found the explanations helpful. RRIF and RRSP withdrawals are fully taxable, similar to interest income. However, they differ from employment income in terms of deductions and tax treatment

[@tedros4sahle]

Very helpful information, thank you very much.

[@DanishGhaziCPA]

Thank you for your kind words. I appreciate your feedback. 😊 I'm happy to hear that you found the information helpful. Dividend taxes can be confusing, but they are important to understand if you want to optimize your income and savings. If you have any questions or suggestions for future videos, please let me know. I'd love to hear from you. And don't forget to like, share, and subscribe to my channel for more videos on tax and financial topics. Thanks for watching. 👍

[@MJ-cg8vp]

Just a question. If you invest in dividend stock portfolio from a bank, are the dividends eligible for the dividend tax credits?

[@willkeen5010]

It’s not so much were or what broker you use to invest but that the stocks you invest in are eligible, ie Canadian companies

[@DanishGhaziCPA]

Great question, feel free to reach out on the matter here: asqme.com/@DanishGhaziCPA

[@iheatuwogu8510]

Your video is really helpful. Thank you

[@DanishGhaziCPA]

Glad to hear that!

[@prika2000]

Why are you making it sound so complicated ???

[@shubhpatel9277]

I know that this calculation is just a senario but do you know that how much you have to invest to make 50k as eligible Dividends? 12:33 Thanks

[@LiveLifeLori]

Roughly about 1.2 million

[@ATGAT]

This isn't really a tax benefit and is only designed to account for taxes already paid at the corporate level on those earnings... Ergo, to not be taxed twice. You shouldn't perpetuate the misconception that this is a tax benefit or tax break.

[@DanishGhaziCPA]

Paying less personal tax on eligble dividends is defintely a benefit but to each their own

[@saccharide]

I agree with you there. In fact, the dividend tax credit never fully compensates the corporate tax rate (the split being around 3% depending on your province). So that difference is lost compared to if you had invested in a dividend paying corporation situated in a jurisdiction without corporate tax

[@gullybull5568]

TAX the CORPoRATIONS .❤❤❤

[@ATGAT]

Corporate profits are taxed, bucko.

[@caitlincaitlin4703]

you're taxing the shareholders by taxing the corporation. the corporation pays nothing.