# Tax Free Dividend Income For Households



## MoMoney (Apr 1, 2011)

Simple questions,

The federal tax credit allows for $45000/year tax free if your only income source is Canadian dividends as a single person.

What is the tax credit for a couple? Is it just automatically x2? Could a couple be eligible for 90K tax free under the same circumstances?


----------



## FrugalTrader (Oct 13, 2008)

Best thing is to run your numbers through a tax calc: http://www.taxtips.ca/calculators/taxcalculator.htm

But yes, if you are both on the account, then you can split the dividends between you thus pay less tax overall. That is providing that you both have no other income.


----------



## Square Root (Jan 30, 2010)

Yes. Each person can earn about 
40-45k tax free if no other income. These must be dligible CDN divs. Keep in mind you can't just split dividends as you please but must allocate income based on the attribution rules which have been discussed at length here. The treatment of eligible CDN divs is one of the best tax breaks going along with pension income splitting.


----------



## liquidfinance (Jan 28, 2011)

I did have a look at this when I was punching figures into taxt tipx.

Although my monthly dividend income of around $200 is someway off me being able to give up the job and live off the dividends. 

One Day .... :biggrin:


----------



## My Own Advisor (Sep 24, 2012)

@liquidfinance Everyone starts off small. You'll get there. I've got a long ways to go to catch up to my goal: $30,000 in dividend income per year but every month, it grows by a little bit.


----------



## OhGreatGuru (May 24, 2009)

So a couple can potentially have $90K combined dividend income tax-free. Another iniquitous tax loophole. (I know, we all benefit from the Dividend Tax Credit in proportion to our dividend income. But when you see the extreme case like this you have to shake your head about our income tax rules. Just compare this tax treatment to two working stiffs each earning $45K)


----------



## GoldStone (Mar 6, 2011)

Companies pay taxes on their earnings. Dividends come from the after-tax earnings. The shareholders pay taxes as the company owners. Are you advocating double taxation of dividends?


----------



## andrewf (Mar 1, 2010)

No loophiole.

People who think there are huge loopholes don't really understand the tax system. It was designed carefully by reasonably intelligent and well-educated people.


----------



## Square Root (Jan 30, 2010)

Agree the tax treatment of divs is not a "loophole" but rather a rational, equitable approach since the co already pays tax on earnings. However, being rational and equitable isn't all that common when it comes to tax policy. The fact that the tax rates on divs are so disparate between provinces is also a little strange. Max marg rate in Alberta 19% versus Ontario at about 32%. These rates don't seem to have much relationship to the actual corp tax rates in those provinces. Furthermore, the tax rate paid by he individual is based on his province of residence rather than the province(s) where the corp pays tax. Anyway, I only invest in Cdn co's to get the "fair" tax treatment. If were to buy US div payors I would be " volunteering" for double taxation.


----------



## Butters (Apr 20, 2012)

I'm just curious, can someone run me some numbers
pick a canadian dividend stock, maybe a bank
and how many shares (at what current price) would you need to get a 45k income

are we talking like a million dollars


----------



## Square Root (Jan 30, 2010)

SheaButters said:


> I'm just curious, can someone run me some numbers
> pick a canadian dividend stock, maybe a bank
> and how many shares (at what current price) would you need to get a 45k income
> 
> are we talking like a million dollars


yes just about $1million. The Cdn banks yield in the range of 3.8% to 5.0% so if you have $1million in bank stock you will get between 38k and 50k per year in dividends depending on which bank(s) you bought.


----------



## HaroldCrump (Jun 10, 2009)

SheaButters said:


> are we talking like a million dollars


Yep, give or take.
A 5% yield on a $1M investment will give you $50K before taxes.


----------



## Square Root (Jan 30, 2010)

OhGreatGuru said:


> So a couple can potentially have $90K combined dividend income tax-free. Another iniquitous tax loophole. (I know, we all benefit from the Dividend Tax Credit in proportion to our dividend income. But when you see the extreme case like this you have to shake your head about our income tax rules. Just compare this tax treatment to two working stiffs each earning $45K)


If those "working stiffs" haven't saved any money and thus don't earn any divs, they are indeed "stiffs"


----------



## crazyjackcsa (Aug 8, 2010)

Hang on, maybe a dumb question, but how is it possible to only collect an income in dividends? Even if the person had a checking account, they'd be earning some sort of interest, wouldn't that count as income and thereby disqualify a person?


----------



## webber22 (Mar 6, 2011)

The interest would not disqualify you from tax credits, it could affect the amount of tax credits received. Keep in mind that there is a dividend gross-up that could disqualify you from OAS, age credit, HST credit and property tax credits. For example, a senior with a generous pension might actually be worse off receiving a large amount of dividends, receiving return of capital from reits etc would be better off in these cases.


----------



## Square Root (Jan 30, 2010)

crazyjackcsa said:


> Hang on, maybe a dumb question, but how is it possible to only collect an income in dividends? Even if the person had a checking account, they'd be earning some sort of interest, wouldn't that count as income and thereby disqualify a person?


Not a question of disqualification, but rather creating a little tax to pay. No big deal really as the tax rate on the divs will still be very low. good point about the gross up and OAS. A sore point for many but in reality a fair and equitable result. You can't have it both ways.


----------



## avrex (Nov 14, 2010)

FrugalTrader said:


> Best thing is to run your numbers through a tax calc: http://www.taxtips.ca/calculators/taxcalculator.htm


Let's punch in some numbers for an Ontario resident. 
(Let's assume the person is retired with no employment income, but just the income below. Let's exclude the $600 Ontario health premium that every Ontarian has to pay.)

Scenario 1: 50,000 in Canadian dividends. Tax $0. :smile:

Scenario 2: 50,000 in Other income (interest, fixed income, etc.) Tax $ 9,080.
(Example, The bulk of XBB - DEX Universe Bond Index Fund is paid as 'other income')

This really makes you think about increasing your weight in dividend stocks.

*But, you have to strike a balance. * 
If you assume more equity risk, you'll pay less taxes. But, at the cost of safety.


----------



## AMABILE (Apr 3, 2009)

HOW, WHEN , IN WHAT SITUATION 
would someone ever have $50,000.00 
in dividends and no other income ?


----------



## GoldStone (Mar 6, 2011)

An early retiree who is too young to receive CPP/OAS
1.1M non-reg portfolio @ 4.5% dividend yield


----------



## avrex (Nov 14, 2010)

Scenario 1 was just a fun/wishful example to illustrate the tax benefits of holding Canadian dividend stocks.

Now, time for me to get back to researching Canadian dividend stocks...


----------



## Young&Ambitious (Aug 11, 2010)

BUT there is the alternative minimum tax, so if you are getting close to that $50k mark you may want to take a look at your portfolio and its tax consequences http://www.taxtips.ca/dtc/enhanceddtc/amt.htm


----------



## Jungle (Feb 17, 2010)

AMABILE said:


> HOW, WHEN , IN WHAT SITUATION
> would someone ever have $50,000.00
> in dividends and no other income ?


There are people in this thread who are retired with dividend income like that. I think it's awesome. 

Problem is, that dividend tax rate keeps going up every year now (in Ontario)


----------



## AMABILE (Apr 3, 2009)

but if they are retired they would have 
CPP , OAS, INTEREST INCOME , maybe a PENSION.
can't think of a situation where someone has
$50k in dividends and no other TAXABLE INCOME
IMPOSSIBLE !!


----------



## blin10 (Jun 27, 2011)

why not, if home is paid off all you need 50-70k/year and you're set... why keep working ? you don't need to be 60+ to accomplish that...


----------



## AMABILE (Apr 3, 2009)

I still say "NO TAXABLE INCOME.......IMPOSSIBLE "


----------



## Jon_Snow (May 20, 2009)

GoldStone said:


> An early retiree who is too young to receive CPP/OAS
> 1.1M non-reg portfolio @ 4.5% dividend yield


I'm going to give this scenario a try in a few years. :encouragement:


----------



## GoldStone (Mar 6, 2011)

AMABILE said:


> I still say "NO TAXABLE INCOME.......IMPOSSIBLE "


I find it impossible to understand how you find it impossible to comprehend that it's not impossible at all.


----------



## al42 (Mar 5, 2011)

GoldStone said:


> I find it impossible to understand how you find it impossible to comprehend that it's not impossible at all.


Me too...I have 2 more GIC's coming due over the next 2 years and I will be in this exact position.
Unless 5 year GIC's go back to over 5% and I lock in again, I will have no income,no cpp,and no oas.
I have another 8 or 13 years to go before collecting any cpp or oas depending on if I take cpp at 60 or 65.
And I think with the new rules I can only collect oas at 66.


----------



## OhGreatGuru (May 24, 2009)

Square Root said:


> Agree the tax treatment of divs is not a "loophole" but rather a rational, equitable approach since the co already pays tax on earnings. ...


"Loophole" was a poor choice of words. I understand the theory behind it - but disagree it is "rational & equitable" from a personal income tax point of view.
A company that has salaried employees also pays taxes, but the employees' salaries are not received tax-free.
Try to convince the $45k/yr wage slave that it is "equitable" that someone with $45k in dividend income gets it tax free.
Maybe all employees should demand their "wages" be paid as dividends. People who own their businesses are allowed to manipulate their earnings this way (by paying themselves in dividends rather than salary) Why can't everyone?


----------



## OhGreatGuru (May 24, 2009)

andrewf said:


> ... It was designed carefully by reasonably intelligent and well-educated people.


Who are given political direction to preserve a dividend tax treatment that greatly favours inbdividuals with lots of money to invest.


----------



## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> A company that has salaried employees also pays taxes, but the employees' salaries are not received tax-free.


Salaries come from *before-tax* revenue. Dividends come from *after-tax* earnings.

The pool of money paid out as salaries is not taxed at the corporate level. Therefore, it is being taxed at the personal level.

Dividends are the opposite. They are taxed at the corporate level; not taxed at the personal level.

Each pool of money is being taxed exactly once.


----------



## doctrine (Sep 30, 2011)

Dividend rates are going up in most provinces because they are cutting corporate tax rates. If the corporations pay less tax, then the shareholders have to pay more.

It is a really well thought out system here - whether you use your profits to pay income, pay dividends, or raise share prices, the taxes are roughly the same. 

The simple answer of "let's tax dividends more" will just drive corporations and the people that control them to pay less dividends. If you really want more tax, you have to tax everything higher. Of note, corporate income taxes are higher across the board in Canada even though rates are lower. The system is working.


----------



## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> Try to convince the $45k/yr wage slave that it is "equitable" that someone with $45k in dividend income gets it tax free.


One more time. It is NOT tax free.

Your employer pays you salary. You pay income tax on it. Then, you turn around and give an allowance to your kid. Your kid doesn't pay another tax on his allowance, does he?

Is your kid's allowance tax free? No. *You* paid tax on it.

Same idea with dividends. Corporation pays tax on earnings. Then it pays an allowance (dividends) to the shareholders.


----------



## andrewf (Mar 1, 2010)

^ This is why I don't get the obsession with dividends.

Let me say it again people: the only thing that matters is total after-tax return.


----------



## andrewf (Mar 1, 2010)

Jungle said:


> There are people in this thread who are retired with dividend income like that. I think it's awesome.
> 
> Problem is, that dividend tax rate keeps going up every year now (in Ontario)


Effectively, the total tax is not changing. The corp is paying less tax, and as a consequence, the marginal tax individuals pay on dividends rises automatically (the gross up is adjusted) so that the tax rate from pre-tax corporate income to after-tax personal remains the same.


----------



## thompsg4416 (Aug 18, 2010)

OhGreatGuru said:


> Who are given political direction to preserve a dividend tax treatment that greatly favours inbdividuals with lots of money to invest.


Totally agree 100%...lets not kid ourselves.


----------



## Square Root (Jan 30, 2010)

The employer gets to deduct wages as an expense while the employee includes them in income. Seems pretty rational and equitable to me. Again, people who invest should get a fair tax treatment regardless of how much money they have. Being wealthy is not a sin. Not even in China or Russia any more.


----------



## Square Root (Jan 30, 2010)

Young&Ambitious said:


> BUT there is the alternative minimum tax, so if you are getting close to that $50k mark you may want to take a look at your portfolio and its tax consequences http://www.taxtips.ca/dtc/enhanceddtc/amt.htm


i was going to mention this but thought it might confuse people. An example of someone who might be caught would be my wife who earns about $50k in divs with only a small pension and interest income . The fact that we can split my much larger pension solves the AMT question. Incidently, there are many people with this amount of dividend income and with the max marg tax on divs at only 19% in Alberta, it is an efficient way to get income in retirement. A well funded retirement is the goal for most on this forum. i am a little surprised at the attitude against wealth espoused by some here.


----------



## kcowan (Jul 1, 2010)

andrewf said:


> Effectively, the total tax is not changing. The corp is paying less tax, and as a consequence, the marginal tax individuals pay on dividends rises automatically (the gross up is adjusted) so that the tax rate from pre-tax corporate income to after-tax personal remains the same.


It is completely equitable except for anyone receiving the Age Credit or the OAS, both of which are clawed back by the grossed up amount of the dividends. This will not become equitable until corporate taxes are eliminated.


----------



## Young&Ambitious (Aug 11, 2010)

Square Root said:


> i am a little surprised at the attitude against wealth espoused by some here.


I think people are jealous. To get there is a long road with lots of time and lots of work required, and the majority of us aren't there. And most people on the way there aren't in a situation to maximize their after tax income through business or professional income or dividend or capital gain incomes compared to employment income.


----------



## redgogoboots (Oct 6, 2012)

AMABILE said:


> but if they are retired they would have
> CPP , OAS, INTEREST INCOME , maybe a PENSION.
> can't think of a situation where someone has
> $50k in dividends and no other TAXABLE INCOME
> IMPOSSIBLE !!


There's a mis-communication here between *traditional* retirement and *early *retirement. 

As several other forum members have already mentioned, it is entirely possible for an *early* retiree (who is not yet collecting CPP/OAS/etc, and has no employment income) to collect $45-50K in dividends. The amount varies from province to province, but here in BC, a couple earning $100,000 in dividends will pay only $204 in taxes for the year.


----------



## kcowan (Jul 1, 2010)

Y&A
There are lessons to be learned by those aspiring. Pay off debt. Don't borrow to invest until you have developed a track record for investing. Don't buy gadgets. Forget about The Jonses. Don't try for the quick score.

But I agree with Square Root.


----------



## blin10 (Jun 27, 2011)

what if let's say you get 80,000$ a year from dividends in Ontario, how do they calculate tax, so first 50k is tax free and rest 30k is taxed at some rate? is that how it works and what rate do they use to tax rest 30k?


----------



## MoneyGal (Apr 24, 2009)

Square Root said:


> i was going to mention this but thought it might confuse people. An example of someone who might be caught would be my wife who earns about $50k in divs with only a small pension and interest income . The fact that we can split my much larger pension solves the AMT question. Incidently, there are many people with this amount of dividend income and with the max marg tax on divs at only 19% in Alberta, it is an efficient way to get income in retirement. A well funded retirement is the goal for most on this forum. * i am a little surprised at the attitude against wealth espoused by some here.*


Meh. A vocal minority. I first paid AMT in my 20's. I'm not anti-wealth. :02.47-tranquillity:


----------



## avrex (Nov 14, 2010)

blin10 said:


> what if let's say you get 80,000$ a year from dividends in Ontario, how do they calculate tax, so first 50k is tax free and rest 30k is taxed at some rate? is that how it works and what rate do they use to tax rest 30k?


Well, if I plug those figures into the calculator (http://www.taxtips.ca/calculators/taxcalculator.htm), I get a tax of 6,084. That figure excludes the $750 Ontario Health Tax.
So, based on the calculator, the *tax rate* on the next 30,000 is about *20%.*


----------



## blin10 (Jun 27, 2011)

thanks


avrex said:


> Well, if I plug those figures into the calculator (http://www.taxtips.ca/calculators/taxcalculator.htm), I get a tax of 6,084. That figure excludes the $750 Ontario Health Tax.
> So, based on the calculator, the *tax rate* on the next 30,000 is about *20%.*


----------



## Square Root (Jan 30, 2010)

kcowan said:


> It is completely equitable except for anyone receiving the Age Credit or the OAS, both of which are clawed back by the grossed up amount of the dividends. This will not become equitable until corporate taxes are eliminated.


I can see why people would feel this is unfair. On the other hand you shouldn't be able to have it both ways, ie if you are given a credit for the tax paid by the corp via a gross up mechanism, why wouldn't the grossed up income be used to claw back OAS? If you earned the income directly the grossed up amount would be used for the claw back. Anyway OAS seems like a pretty generous program to me in that it is non contributory and not clawed back till one earns over $70k or so per year.


----------



## kcowan (Jul 1, 2010)

OAS was contributory for the first 20 years of its existence. The fact that the government found that inconvenient just enabled them to no longer account for the sources and uses of the tax revenue, a common trick by government. But I agree that the $70k exclusion is ridiculous. They should start the clawback at $50k. Instead they choose to raise the age to 67. What a crock!

If they would just get rid on corporate income tax, I would be happy.


----------



## Square Root (Jan 30, 2010)

kcowan said:


> OAS was contributory for the first 20 years of its existence. The fact that the government found that inconvenient just enabled them to no longer account for the sources and uses of the tax revenue, a common trick by government. But I agree that the $70k exclusion is ridiculous. They should start the clawback at $50k. Instead they choose to raise the age to 67. What a crock!
> 
> If they would just get rid on corporate income tax, I would be happy.


Agree. I didn't know OAS was contributory at the start.


----------



## MoneyGal (Apr 24, 2009)

Square Root said:


> Agree. I didn't know OAS was contributory at the start.


One could only make the argument that OAS was "contributory" using the loosest possible definition of "contributory," i.e., calling every program funded by federal tax dollars "contributory".

When first introduced in 1952 to replace the Old Age Pensions (instituted under Macdonald in 1927) is was a universal, non-means-tested pension to everyone over the age of 70 who had lived in Canada for at least 20 years. 

Yes, it was federally funded and there may have been some notional contributory amount on federal income tax forms. But given that it was a universal pension available to all who met the criteria no matter whether they had ever paid a cent of federal income tax or not, it is very difficult to make the argument that OAS was a "contributory" program in the way that term is normally understood (consider CPP: you don't get money out if you have not paid money in. CPP is a contributory program). 

You could have a federal income tax form which broke down which fraction of taxes paid go to which federal programs (and OAS would be up there: 13 cents of every dollar of federal income tax collected goes to OAS today). And then you could call all of those programs "contributory." But if the benefits out are not related to the payments in (and they are not, as evidenced by the recent changes to OAS benefit scheme - those changes affect everyone, and are not "tiered" based on contribution rates or levels or amounts), OAS is not a contributory program (and has never been).


----------



## AMABILE (Apr 3, 2009)

If one has $50,000k in dividends, with 30,000k 
in taxable income, what is the tax treatment ?


----------



## andrewf (Mar 1, 2010)

Try it for yourself:

http://www.taxtips.ca/calculators/taxcalculator.htm


----------



## kcowan (Jul 1, 2010)

OAS was contributory in that a special tax was added to pay for it and the tax revenues and expenses were kept separate for 20 years. The fund was managed separately. But it was in no way similar to CPP as MG rightly points out. The government kept all the funds and just had a separate entry, unlike CPP which is truly independent.

(It is a historical fact much like the gasoline tax that was for highway maintenance. The government prefers to not associate revenues with expenses because it gives them more flexibility to spend our money as they see fit.)


----------



## MoneyGal (Apr 24, 2009)

Well...the original program was 66% funded by non-income-tax revenues, and there was a cap ($60) on the amount of personal income taxes levied on any one person in support of the new OAS program. (This was when the maximum monthly payment was $40.) 

The remainder of the taxes in support of the program were (a) a portion of the federal sales tax and (b) a tax on corporation income (all three sources were notionally responsible for 33% of the cost of the program in any given year). 

I'm still going to argue that OAS was not a "contributory" program in the way we understand that term today. There was an earmarked fund, which was kept separately from general revenues, but only a relatively small fraction -- less than 30% -- of the contributions to that fund came from levies on individuals.


----------



## avrex (Nov 14, 2010)

John Heinzl (The Globe and Mail) must have been reading this thread.

You do the math: Almost $50,000 in earned dividends, $0 in tax (Oct 10, 2012)


----------



## Square Root (Jan 30, 2010)

Yes, when I read the afticle I thought of this thread. One aspect of this discussion is the fact that non Canadian dividends in non registered accounts don't get the advantaged tax treatment afforded to Canadian divs. Being a retired div investor this effectively prevents me from owning some very good dividend paying stocks. Makes sense from a tax policy perspective but still a shame for investors like me.


----------



## Eclectic12 (Oct 20, 2010)

AMABILE said:


> but if they are retired they would have
> CPP , OAS, INTEREST INCOME , maybe a PENSION.
> can't think of a situation where someone has
> $50k in dividends and no other TAXABLE INCOME
> IMPOSSIBLE !!


Technically - based on there likely being a small interest income, true.

However - I believe OAS won't kick in until a certain age and if the individual has never worked in the first place, will that get rid of CPP, just like it gets rid of the pension?

Of course there'd likely have to be some sort of windfall (ex. lottery, inheritance, gift) to provide the money that buys the shares providing the dividend income.


However - depending on the details of the retiree's situation (ex. low spending, no pension), would it be possible to wipe out that taxes from CPP & OAS so that the final tax situation is no taxes to be paid?


Cheers


----------



## Square Root (Jan 30, 2010)

Early retirement before CPP or OAS kicks in can cause this situation. My wife has been retired for 10 years, currently 55 years old. Saved a lot but also got an inheritance. I paid the expenses so she could save.


----------



## Charlie (May 20, 2011)

more fun with dividends: 

In some provinces, including BC, there's a sweet spot of taxable income under about $40K (not from div's -- so you're otherwise subject to tax) where dividends have a negative marginal rate. You reduce your tax the more dividend you get! It's because the dividend tax credit is greater than your marginal rate, and you are otherwise subject to tax...

http://www.taxtips.ca/taxrates/bc.htm -- check the rate for eligible dividends....


----------



## Four Pillars (Apr 5, 2009)

AMABILE said:


> but if they are retired they would have
> CPP , OAS, INTEREST INCOME , maybe a PENSION.
> can't think of a situation where someone has
> $50k in dividends and no other TAXABLE INCOME
> IMPOSSIBLE !!


Along with early retirement scenarios, another possibility is someone who moves to Canada at age 65 or older.

OAS is based on years of residency prior to age 65, so if a 68 year old who has never lived in Canada, immigrates here, they won't receive any OAS.

Their CPP will be zero, assume they have no pension from anywhere else - put all their cash in dividend stocks and there you have it. No other taxable income other than dividends.


----------



## blin10 (Jun 27, 2011)

does Canadian income funds (ie. ipl.un , d.un, rei.un,etc) have same dividend benefits and follow into that no tax bracket up to 47k? I ask because when they pay it says "interest" and not "dividend"


----------



## andrewf (Mar 1, 2010)

avrex said:


> John Heinzl (The Globe and Mail) must have been reading this thread.
> 
> You do the math: Almost $50,000 in earned dividends, $0 in tax (Oct 10, 2012)


So, as long as the tax is 'hidden', it's no tax at all? Many people think this way. We made a mistake when we made the GST by showing the pre-tax price. There would be much less squawking if the tax was built in to the prices we pay.


----------



## Eclectic12 (Oct 20, 2010)

blin10 said:


> does Canadian income funds (ie. ipl.un , d.un, rei.un,etc) have same dividend benefits and follow into that no tax bracket up to 47k? I ask because when they pay it says "interest" and not "dividend"


Likely not are each of these seems to be trust unit which pays a cash distribution. 

This means that there are several different tax treatments for the total payment, which has to be reported accordingly. 
Note that the breakdown can vary year to year so check the investor section of the web site.

Using this link to the Dundee Reit website, 
http://www.dundeereit.com/InvestInfo-Tax.html

The 2011 tax breakdown is that 29% of the cash payments is taxable income, 0.3% is a taxable capital gain and 70.7% is Return of Capital (RoC). 

The RoC will reduce the adjusted cost base (ACB) and boost the capital gain to report when the units are sold, until the ACB becomes negative. While the ACB is negative, the RoC portion is reported as more taxable capital gain in each tax year until something makes the ACB positive.


Or for a more complicated version, here is the RioCan website,
http://investor.riocan.com/Investor-Relations/distribution-info/Income-Tax-Information/default.aspx

In 2011, each unit paid $1.38, where 38.24% is reported as taxable other income, 1.72% is a taxable capital gain, 4.57% is taxable Foreign Non-Business Income and 62.47% is RoC.


So at minimum, there will be taxable income and taxable capital gains - which is not dividend income.


The trust can pay dividends as part of the cash distribution (see 2001 for RioCan link) but most trusts pay little or none of the distribution as dividends.


Here are some links to help sort of the tax aspects of this type of investment:
http://www.taxtips.ca/personaltax/investing/taxtreatment/incometrusts.htm
http://www.milliondollarjourney.com/income-trust-distributions-and-taxation.htm



Cheers


----------



## blin10 (Jun 27, 2011)

thanks, but to put it in simple terms, let's say I get $47,000 from D.UN in Ontario with no other income, how much (if any) tax I will have to pay ? 29% of 47k is 13k, so I'll be paying tax on 13k? when you pay tax, isn't first 10k tax free ?




Eclectic12 said:


> Likely not are each of these seems to be trust unit which pays a cash distribution.
> 
> This means that there are several different tax treatments for the total payment, which has to be reported accordingly.
> Note that the breakdown can vary year to year so check the investor section of the web site.
> ...


----------



## Eclectic12 (Oct 20, 2010)

^^^^

To make the posts simpler, it's better to quote as little as possible.

Secondly - there is no magic here. The dividend tax credit is reducing the taxes that are assessed on
eligible dividends. Since Dundee does not appear to be paying eligible dividends - there is no reduction
in taxes. This means that all of the cash paid to the investor is taxable based on it's type.


Walking through the example of $47K from Dundee with no other income:

29% is taxable income so that's something like $13,630 to report as income.
0.3% is capital gains so $141 is reported as a taxable capital gain.
70.7% is RoC so something like $33,229 is subtracted from the Adjusted Cost Base (ACB) of the units. 

I'll assume that after the subtraction, the ACB is still positive so that nothing further is required.
[If the ACB is negative, there are more capital gains to report.]


This means the taxable items are the $13,630 in income and $141 capital gain to report on the tax return.


Plugging this into the 2011 tax spreadsheet available at http://www.peeltech.ca/mytax/register2011.html,
with no other items such as charitable donations or other income, the tax bill is $520.29 to pay.

*Edit:* I should have noted that Ontario version of the spreadsheet was used as the question mentioned Ontario. YMMV with other provinces.

Note that in this example, the taxes are low because:

a) capital gains are taxed at a better rate than interest/income.

b) with the ACB being positive after the subtraction, the bulk of the cash distribution (70+%) is a capital gain that is deferred into the future year the trust unit(s) are sold.


Cheers


----------



## blin10 (Jun 27, 2011)

thanks for your time...


----------



## Square Root (Jan 30, 2010)

Nice post eclectic. You are indeed generous with your time.


----------



## rumblecat (Oct 17, 2012)

GoldStone said:


> An early retiree who is too young to receive CPP/OAS
> 1.1M non-reg portfolio @ 4.5% dividend yield


$1.1 Million non-registered portfolio? 
So roughly 0.01% of the Canadian population can employ this strategy.
And if they have $1.1 Million in non-registered investments they almost certainly have registered investments as well.


----------



## Eclectic12 (Oct 20, 2010)

^^^^

Thanks ... I'm not always sure if the message is clear.


The take-away for those with investments that have a bunch of different types of cash or re-investment payments is that it will save a lot of grief investigating the tax treatment and making sure one's bookkeeping system considers this.

It's the same as balancing a cheque book - knowing what is required in advance and updating the register say monthly as a routine is relatively simple compared to trying to figure out five years later, from limited info what has happened.

This seems to be an issue for a lot of people as they are either not aware of the tax treatment of trust units or think it is only trust units that have this requirement. There are mutual funds and ETFs that have mixed type payments so it is better to be proactive.


Another solution is to make sure these type of investments are in a registered account (ex. RRSP or TFSA). This will save the bookkeeping plus the tax reporting while potentially forgoing a tax advantaged form income.


Cheers


----------



## Square Root (Jan 30, 2010)

rumblecat said:


> $1.1 Million non-registered portfolio?
> So roughly 0.01% of the Canadian population can employ this strategy.
> And if they have $1.1 Million in non-registered investments they almost certainly have registered investments as well.


I'm not sure you would call this a stategy, but I assure you it is possible, which was the question.


----------



## blin10 (Jun 27, 2011)

another question, if I buy Canadian company that trades on both Canadian and USA exchanges and I buy the USA side, will that still utilize Canadian dividend credit and i will not be charged for USA withholding tax? or I need to buy stock only on the Canadian exchange ?


----------



## humble_pie (Jun 7, 2009)

blin first of all where are you planning to *hold* this stock ? in USD or CAD account ?


----------



## blin10 (Jun 27, 2011)

in a USD account



humble_pie said:


> blin first of all where are you planning to *hold* this stock ? in USD or CAD account ?


----------



## humble_pie (Jun 7, 2009)

blin10 said:


> in a USD account



but why hold in USD account ? every single one of those canadian dividends is going to be charged just under 1.50% in FX fees by the broker, as broker converts the original dividend from CAD to USD.

1.50% is a lot of $$ to lose imho ...

while we're on this issue & just to make things even more complicated, about 20 widely-held leading canadian companies pay their dividends in USD only. Well-known names like encana, talisman, potash, agrium, barrick, goldcorp, magna & others are on this list. Those companies' shares *should* be held in USD account so as to avoid evil brokers' evil FX fees.

there's a good article about this plus a list of canadian stocks paying US divs over on CanadianCapitalist blogspot. Blin i'll get you the link when i have a mo.

all other canadian companies pay divs in CAD & parties wishing to hold these stocks in USD account should first review & consider whether they want to pay evil FX fees on the dividend stream.

bref, if you are thinking that holding interlisted stock in USD account will generate a stream of USD dividend income that will be free from FX fees, think again. This is not the case. You will be charged FX on most of these dividends. Details will probably *not* appear on your statement, so the fact that this is actually taking place will be hidden from your view, tch tch.

in fact the concealment of brokers' FX fees on many kinds of dividends - 2 of the FX'ed dividend routes are set forth above - concealment by brokers of the FX fees they are indeed charging, on cash & margin account statements, is a vast & ancient scandal that is only now beginning to come to light, thanks to forums like this one & CanadianCapitalist blogspot.

moving on & assuming you do in fact decide to enrich your broker with a hidden extra payment of 1.50% of your dividend stream, here are your original 2 questions.

Q: will i pay US withholding tax on dividends from interlisted canadian stocks if i hold such stock in USD account ?
A: no.

Q: will i receive eligible dividend tax credits for dividends from interlisted canadian stocks if i hold such stock in USD account ?
A: yes. You will also receive a T5 setting forth details of the dividend tax credit for these stocks. The T5 will be in US dollars so investor will have to convert all figs (grossed up amounts plus tax credits, etc) into canadian dollars for tax reporting purposes.


----------



## blin10 (Jun 27, 2011)

thanks humble... the reason I don't want to convert usd $ right now because it's my hedge in case market sinks and dollar goes up... i plan to exchange only if it goes to 1.1+ rate


----------



## humble_pie (Jun 7, 2009)

blin here's that CC blogspot link. Bottom line is one should be mighty smart about where one keeps one's dividend stream.

http://www.canadiancapitalist.com/canadian-stocks-paying-us-dollar-dividends/

if U are thinking to hedge later, how about that canadian dollar etf that trades in US market ... you can even buy/sell options on it each:


----------



## Toronto.gal (Jan 8, 2010)

blin10 said:


> if I buy *Canadian company* that trades on both Canadian and USA exchanges and I buy the USA side, will that still utilize Canadian dividend credit and i will not be charged for USA withholding tax?


*Blin:* You have to just keep in mind that just because a Canadian company is interlisted, it does not make it a foreign corporation, hence the Canadian dividend tax credit would always apply.

All that interlisted means, is that the stock in question, is listed on multiple stock exchanges, but it does not change their nationality. :biggrin:

Those evil hidden FX fees are nothing more than highway robbery, but for that reason, I hold most of the Canadian companies that I own & that pay their dividends in USD, in US accounts. I can't always avoid the fees, but at least one can minimize such charges whenever possible.


----------



## blin10 (Jun 27, 2011)

thanks guys for info...


----------



## andrewf (Mar 1, 2010)

Also, some Canadian stocks issue USD dividends. How confusing can we make things?


----------



## Young&Ambitious (Aug 11, 2010)

Questrade allows for CAD & USD holdings so they retain their USD/CAD currency, including dividends. So for example, I hold Barrick (a Canadian company, which is also interlisted) and when I receive their dividends in USD they stay in USD and do not get converted. I must say I love this feature


----------



## Toronto.gal (Jan 8, 2010)

Young&Ambitious said:


> So for example, I hold Barrick (a Canadian company, which is also interlisted) and when I receive their dividends in USD they stay in USD and do not get converted. I must say I love this feature


Are you saying that you have ABX in a CDN account? :confused2:


----------



## Young&Ambitious (Aug 11, 2010)

Toronto.gal said:


> Are you saying that you have ABX in a CDN account? :confused2:


I have ABX.TO. Questrade allows you to hold USD/CAD positions in USD/CAD currency within the same account. So if I wanted to, I could have ABX and ABX.TO in the same account.


----------

