Canadian dividends give you tax advantages

Article Excerpt

Investors who hold dividend-paying Canadian stocks get an additional bonus: their dividends may be eligible for the tax credit reserved for the dividends of Canadian corporations. This means those dividends get taxed at a lower rate than the same amount of interest income; for example, investors in the highest tax bracket pay tax of about 30% on dividends, compared to around 50% on interest income. The tax on capital gains is even lower, at roughly 25%. However, dividends are far steadier and more dependable than capital gains. It’s worth noting: dividends paid by U.S. companies to Canadian shareholders are not eligible for this dividend tax credit. For those payments, investors pay tax at the same rate they would interest income—and on the full amount of the U.S. dividends. Canadian shareholders of U.S. stocks also pay withholding taxes on those dividends. If they hold that stock outside of an RRSP or RRIF, they may get a Canadian income tax credit to offset the taxes…