How are dividends taxed at the personal level

At the personal level, dividends are taxed differently depending on the type of dividend you receive. In Canada, there are two types of dividends: eligible dividends and non-eligible dividends.

Eligible dividends are dividends paid by a Canadian corporation that has paid corporate income tax at the federal small business tax rate. These dividends are eligible for a special dividend tax credit, which is a non-refundable tax credit that reduces the amount of tax you owe on your eligible dividends.

The amount of the dividend tax credit is determined by the amount of eligible dividends you receive and your marginal tax rate. For example, if you receive $1,000 in eligible dividends and your marginal tax rate is 20%, the dividend tax credit would be $190 ($1,000 x 19%), which would reduce your tax payable on the dividends to $80 ($1,000 - $190).

Non-eligible dividends are dividends paid by a corporation that has not paid corporate income tax at the federal small business tax rate. These dividends are not eligible for the dividend tax credit and are taxed at your marginal tax rate. For example, if you receive $1,000 in non-eligible dividends and your marginal tax rate is 20%, you would owe $200 in taxes on the dividends ($1,000 x 20%).

It's important to note that the tax treatment of dividends can vary depending on your individual circumstances and the type of corporation that is paying the dividends. It's recommended that you consult with a tax professional to determine the tax implications of any dividends you receive.

In conclusion, dividends are taxed differently at the personal level depending on the type of dividend you receive. Eligible dividends are eligible for a special dividend tax credit, while non-eligible dividends are taxed at your marginal tax rate. It's important to understand the tax implications of any dividends you receive and consult with a tax professional if necessary.