Dividend Tax Credit in Canada



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A dividend tax credit is issued by the Canadian government to resident taxpayers who are also shareholders in a company. The purpose of the credit is to reduce the amount of taxes paid by an individual; otherwise they could be taxed doubly on both their regular income and shareholder dividends received for that year.

This tax credit does not apply to dividends received outside of Canada or to those who file taxes elsewhere.  It is also non-refundable meaning that if the taxpayer should have a negative balance after doing the final calculation on their tax forms, they will not receive a refund of any kind from the Canadian government. 
Dividend tax credit rates vary by the providence and are separate from Federal taxes.  Depending on the type of dividend tax credit an individual is eligible for, their total income for that year can also determine how much of a percentage they will pay.

 

There are two types of dividend tax credit.  The most common is called eligible (also known as enhanced) which are paid to shareholders of public corporations. The other is non-eligible (also known as ordinary), which pertains mostly to private or Canadian-controlled private corporations (CCPCs).

Every year companies issue to shareholders an information slip, or simply ‘slip’, which shows dividend information to be filed with taxes.  The most common is called the T5 (Statement of Investment Income) but there are other slips are issued for the following tax situations - Trust Income, Employee Sharing Plan or Statement of Partnership Income.
If an investor did not receive a slip to be filed with their taxes, they are still responsible for calculating and reporting this on their taxes as part of their income.

To receive individual tax advice, forms and other related information, contact the Canada Revenue Agency.  Their homepage can be found at http://www.cra-arc.gc.ca and available in either English or French.

Non-residents of Canada may contact the International Tax Services Office, which has a toll-free number and will accept collect calls from anywhere in the world.  Telephone service hours are extended between mid-February and April 30 every year.

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