Dividend Income in Canada: Getting Paid Smarter
What Even Are Dividends?
A dividend is a company sharing part of its profits with you just for owning its stock. Think of it as a “thank you” payment for being a shareholder.
Own shares of a bank (like RBC or TD)? They might pay you quarterly dividends.
Some ETFs and REITs also pay out regular dividends.
It’s passive income—you don’t need to sell your shares to earn it.
Types of Dividends in Canada
Not all dividends are taxed the same. The CRA treats them differently depending on where they come from:
| Feature | Eligible Dividend | Non-Eligible Dividend |
|---|---|---|
| Who Pays It? | Big Canadian corporations (e.g. RBC, TD) | Small Canadian businesses (e.g. private corps) |
| Gross-Up Rate | 38% | 15% |
| Federal Tax Credit | 15.0198% of grossed-up amount | 9.0301% of grossed-up amount |
| Ontario Tax Credit | 10.0000% of grossed-up amount | 2.9863% of grossed-up amount |
| Total Tax Credit | 25.0198% of grossed-up amount | 12.0164% of grossed-up amount |
| Tax Advantage | More tax-efficient | Less tax-efficient |
Foreign Dividends
Paid by U.S. or international companies (like Apple or Tesla).
No Canadian tax break — they’re taxed as regular income.
Heads-up: If held in a TFSA, U.S. dividends are hit with a 15% withholding tax that you can’t recover.
Example: You earn $1,000 in eligible dividends from Canadian bank stocks.
| Category | Eligible Dividend | Non-Eligible Dividend |
|---|---|---|
| Dividend Received | $1,000 | $1,000 |
| Taxable Amount (Gross-Up) | $1,380 | $1,150 |
| Total Tax Credit | $345.27 | $138.19 |
Where to Report Dividend Income on the T1 General Return
| Line/Form | Purpose |
|---|---|
| Line 12000 | Report taxable amount of eligible dividends (after gross-up) |
| Line 12010 | Report taxable amount of non-eligible dividends (after gross-up) |
| Line 40425 | Claim the Federal Dividend Tax Credit |
| Line 61520 | Claim the Ontario Dividend Tax Credit (Schedule ON428; varies by province) |
| Schedule 4 | Summarize dividends and interest income (flows into Lines 12000/12010) |
| Schedule 1 + ON428 | Apply federal and provincial tax credits (reduces final tax owing) |
Why Dividends Matter to You
Passive Income: Money flowing in without selling assets.
Compounding Growth: Reinvesting dividends = more shares = more dividends.
Stability: Dividend-paying companies are usually well-established and less volatile
Pro tip: Start early. Even $50/month in dividend stocks reinvested over years can snowball into serious wealth.
Quick Takeaways
Dividends = profit-sharing for investors.
Canadian dividends get tax perks (eligible > non-eligible).
Reinvest to grow your wealth faster.
Use registered accounts to shield dividend income from taxes.
In a TFSA
Tax-free! Dividends earned in your TFSA stay in your pocket.
But U.S. dividends may be subject to withholding tax.
In an RRSP
Tax-deferred! You don’t pay taxes until you withdraw later.
Bonus: U.S. dividends aren’t hit with withholding tax inside an RRSP.
In a Non-Registered Account
Taxable! But eligible dividends get a credit, so you pay less tax.
Foreign dividends? Fully taxed as regular income.
Bottom Line
Dividends aren’t just boring “old people” income. They’re a powerful tool for building long-term financial freedom—whether you’re stacking ETFs, holding bank stocks, or building a diversified portfolio.
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