The Taxation of Dividend Income in Canada

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Paper Citation

Smart, Michael (2017), “The Taxation of Dividend Income in Canada”, Canadian Tax Journal Vol. 65(2), 419-33.

Paper Abstract

For almost 60 years, the Canadian Tax Foundation published an annual monograph, Finances of the Nation, and its predecessor, The National Finances. In a change of format, the 2014 Canadian Tax Journal introduced a new “Finances of the Nation” feature, which presents annual surveys of provincial and territorial budgets, and topical articles on taxation and public expenditures in Canada. In this article, Michael Smart discusses the tax treatment of personal dividend income in Canada. Incorporating the changing parameters of the dividend gross-up and credit system since 1972, including provincial credits, he estimates the effective tax rate on eligible and ordinary dividend income of taxable investors, and compares it with the rate applying to other income sources. He discusses the implications of the tax measures for corporate financial decisions and tax-avoidance behaviour. He also presents new estimates of the associated federal and provincial tax expenditures, which are large. The underlying data for the Finances of the Nation monographs and the articles in this journal will be published online in the near future.