6- Dividend income

The grossed-up amount of dividends received from Canadian corporations is taxable. However, taxpayers are entitled to a tax credit on the taxable amount of the dividend. A distinction has been made between two types of dividends paid by Canadian corporations.

Only an individual who is a resident of Quebec on the last day of the taxation year can claim a dividend tax credit in that province. The tax credit is then calculated regardless of the proportion of the individual’s income earned in the province for the year, even if such a proportion is otherwise used to calculate the tax payable for the year in the province.

The gross-up and credit rates are shown in your province’s Individuals Taxation tables.

Consider acquiring preferred shares of public companies on which dividends are payable in order to reduce the overall income taxes on your portfolio.

Spouse’s Dividend Income

If a taxpayer who has little income tax to pay cannot claim the dividend tax credit, the spouse may elect, for federal purposes to include the dividends in her/his own tax return and claim the related dividend tax credit. This election is possible only if it enables the taxpayer to claim or increase the claim for the spousal amount.

In Quebec, the inter-spousal transfer of the unused portion of the non-refundable tax credits produces a similar result (see Section II).