Investing

Tax benefits of Canadian dividended investments??

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  • May 25th, 2021 12:12 pm
[OP]
Member
May 27, 2013
470 posts
39 upvotes

Tax benefits of Canadian dividended investments??

Is there more benefits or credits etc from investing in Canadian dividends vs US stocks??
24 replies
Sr. Member
Jun 28, 2018
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Canadian Dividends you get the Dividend Tax Credit.
US Dividends there is a withholding tax applied, which you should be able to recover most during tax time. However, the differences:

Non Registered: Yes, but can recover most of the withheld tax.
RRSP: None.
TFSA: Yes, but cannot recover the withheld tax.

More info:

https://www.taxtips.ca/divtaxcredits.htm
https://www.moneysense.ca/save/taxes/fi ... ts-canada/
The Distracted Investor

Dividends through quality companies 😃 Though I usually lose money with trades :facepalm:
[OP]
Member
May 27, 2013
470 posts
39 upvotes
johnnychi wrote: Canadian Dividends you get the Dividend Tax Credit.
US Dividends there is a withholding tax applied, which you should be able to recover most during tax time. However, the differences:

Non Registered: Yes, but can recover most of the withheld tax.
RRSP: None.
TFSA: Yes, but cannot recover the withheld tax.

More info:

https://www.taxtips.ca/divtaxcredits.htm
https://www.moneysense.ca/save/taxes/fi ... ts-canada/
When u give ure examples which type of stocks r u talking about. Not sure what u r saying yes to ....
Sr. Member
Jun 28, 2018
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wantboost1 wrote: When u give ure examples which type of stocks r u talking about. Not sure what u r saying yes to ....
Yes: there is withholding in Non-Registered and TFSA. No: no withholding in RRSP.

As for specific stocks, to generalize if you buy a stock that pays a dividend on a US stock exchange then you will be hit with withholding tax. If you buy from a Canadian exchange then no withholding.
The Distracted Investor

Dividends through quality companies 😃 Though I usually lose money with trades :facepalm:
[OP]
Member
May 27, 2013
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So for long term dividend investing its better to use tfsa and Canadian stocks /etf???
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wantboost1 wrote: So for long term dividend investing its better to use tfsa and Canadian stocks /etf???
Use this article to sort out the most tax efficient investments for the various accounts. With respect to your original question, the only way to get a dividend tax credit on eligible dividends issued by Canadian companies, you need to hold the investments in a non registered account. In registered accounts, there are no immediate taxation for the dividends and so no tax credit.

https://www.finiki.org/wiki/Tax-efficient_investing
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[OP]
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will888 wrote: Use this article to sort out the most tax efficient investments for the various accounts. With respect to your original question, the only way to get a dividend tax credit on eligible dividends issued by Canadian companies, you need to hold the investments in a non registered account. In registered accounts, there are no immediate taxation for the dividends and so no tax credit.

https://www.finiki.org/wiki/Tax-efficient_investing
So I ll get a tax credit in non registered Canadian dividends stocks but then it will be seen as capital gains and then it be will taxed ?? Am I correct here or is the credit higher than the tax for capital gains ?

On the most part what do people usually do with can stocks ?if there's not much difference maybe stay with USA stocks for long term passive income?
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Dec 4, 2011
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wantboost1 wrote: So I ll get a tax credit in non registered Canadian dividends stocks but then it will be seen as capital gains and then it be will taxed ?? Am I correct here or is the credit higher than the tax for capital gains ?

On the most part what do people usually do with can stocks ?if there's not much difference maybe stay with USA stocks for long term passive income?
No, dividends and capital gains are two completely different concepts: Canadian dividends are taxed at a preferential rate (compared to income such as interest because of dividend tax credit) and you are taxed the year you receive the dividend.

US dividends, unless in an RRSP (not TFSA), are subject to 15% witholding tax for which you get a credit on your return but these are still taxed at higher rate than Canadian dividends. This is why it is preferable to hold Canadian dividend equities in non-registered account.

Capital gains (or losses) occur when you dispose of the stock in a non-registered account, take 50% of it and apply it to your taxable income. You can carry losses forward or backward 3 years. Nothing to do with dividends.

US equities are purchased for diversification and more growth stocks are available south of the border.
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wantboost1 wrote: So I ll get a tax credit in non registered Canadian dividends stocks but then it will be seen as capital gains and then it be will taxed ?? Am I correct here or is the credit higher than the tax for capital gains ?

On the most part what do people usually do with can stocks ?if there's not much difference maybe stay with USA stocks for long term passive income?
If you are dividend income harvesting, then Canadian stocks are the way to go as they pay a higher yield plus the dividend tax credit offers a bit of tax relief. With respect to dividend vs capital gains, the quarterly payout that your receive will be taxed as dividend income with a dividend tax credit to offset some of the taxation. In the future when you sell the stock, any gains in value relative to the cost of buying the stock will be taxed as capital gains with an inclusion rate of 50% (as of today anyway).
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admiralackbar wrote: No, dividends and capital gains are two completely different concepts: Canadian dividends are taxed at a preferential rate (compared to income such as interest because of dividend tax credit) and you are taxed the year you receive the dividend.

US dividends, unless in an RRSP (not TFSA), are subject to 15% witholding tax for which you get a credit on your return but these are still taxed at higher rate than Canadian dividends. This is why it is preferable to hold Canadian dividend equities in non-registered account.

Capital gains (or losses) occur when you dispose of the stock in a non-registered account, take 50% of it and apply it to your taxable income. You can carry losses forward or backward 3 years. Nothing to do with dividends.

US equities are purchased for diversification and more growth stocks are available south of the border.
To be accurate, Canadian dividends (eligible dividends) are taxed even more than normal income due to the 1.38x gross up. However, the dividend tax credit offset makes the net tax rate lower. The reason why it should be viewed this way is that as taxable income increases, the merits of eligible dividend income decreases. In any event, dividends have a negative net tax at the lowest taxation rate and up at the highest tax bracket, dividend income offers about 14% tax relief.
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If there's any negatives to investing for Canadian dividends in a non-registered account when it comes to tax filing time I haven't seen them yet. The way things are going with our dividend income growth and moving forward with our annual government mandated withdrawals from the RRIF's, one day my wife and I will be going through the OAS clawback. Not a big deal. In our province taxtips shows that capital gains aren't a better option than Canadian dividends until the over $98,000 taxable income threshold per person is reached. A ways to go before we reach that and I much prefer buy and hold in Canadian dividend equities as the portfolio gets larger over time anyhow.
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Stryker wrote: If there's any negatives to investing for Canadian dividends in a non-registered account when it comes to tax filing time I haven't seen them yet. The way things are going with our dividend income growth and moving forward with our annual government mandated withdrawals from the RRIF's, one day my wife and I will be going through the OAS clawback. Not a big deal. In our province taxtips shows that capital gains aren't a better option than Canadian dividends until the over $98,000 taxable income threshold per person is reached. A ways to go before we reach that and I much prefer buy and hold in Canadian dividend equities as the portfolio gets larger over time anyhow.
Do you have other types of taxable income other than eligible dividends? The gross up pulls the other income up the tax scale.
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Stryker wrote: If there's any negatives to investing for Canadian dividends in a non-registered account when it comes to tax filing time I haven't seen them yet. The way things are going with our dividend income growth and moving forward with our annual government mandated withdrawals from the RRIF's, one day my wife and I will be going through the OAS clawback. Not a big deal. In our province taxtips shows that capital gains aren't a better option than Canadian dividends until the over $98,000 taxable income threshold per person is reached. A ways to go before we reach that and I much prefer buy and hold in Canadian dividend equities as the portfolio gets larger over time anyhow.
One way to stay below the clawback threshold while still enjoying a steady stream of income from your investments is to switch to ETF returning mainly ROC. They are taxed at 0 %. However your ACB will be negatively impacted, so don't hold them too long.
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will888 wrote: Do you have other types of taxable income other than eligible dividends? The gross up pulls the other income up the tax scale.
Income aside from eligible dividends would be the various pensions we have.
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komodor wrote: One way to stay below the clawback threshold while still enjoying a steady stream of income from your investments is to switch to ETF returning mainly ROC. They are taxed at 0 %. However your ACB will be negatively impacted, so don't hold them too long.
I'll leave that kind of ETF to others. Not trying to escape the OAS clawback. I prefer to buy and mostly hold my own individual dividend growth companies in the non-registered. That one is portfolio 2 and got started in 2003. Portfolio 1 was completely sold off in 1999 and paid for most of our house. The timing was excellent since the house prices were pretty well stagnant for the previous decade and started rising again not long after we bought. The stock markets had their waterfall moment starting in 2000. The only ETF we own is in the registered accounts and is an all-in-one balanced global index.
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komodor wrote: One way to stay below the clawback threshold while still enjoying a steady stream of income from your investments is to switch to ETF returning mainly ROC. They are taxed at 0 %. However your ACB will be negatively impacted, so don't hold them too long.
Just a note that if the ROC reduce your ACB to below zero, all future ROC has to be reported as capital gain in the year the ROC are declared.
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How are dividends taxed if recieved in a corporate account (Canadian Controlled Private Corporation)?
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ml88888888 wrote: Just a note that if the ROC reduce your ACB to below zero, all future ROC has to be reported as capital gain in the year the ROC are declared.
That's why I said not to hold them too long.
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komodor wrote: That's why I said not to hold them too long.
Trying to piece it together. Is it then best to hold US dividends in RRSP's and CDN dividends in TFSA's? Or have I not understood it properly?
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jb10071 wrote: Trying to piece it together. Is it then best to hold US dividends in RRSP's and CDN dividends in TFSA's? Or have I not understood it properly?
I prefer Canadian (eligible) dividends in non registered account to benefit from the dividend tax credit.
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