Dividend Tax Credit: a Legal Way to cut your Taxes

When you're building savings for a long-term goal like retirement or education, keep in mind the tax implications of your investment. If you're earning bank interest, you pay income tax on that interest. But if you invest in stocks that pay a dividend, you can reduce taxes and keep more money for financial goals. Dividends are payments made by corporations to their shareholders. Since dividends are paid out of the corporations' after-tax profits, the government recognizes that those dividends shouldn't be taxed again when a shareholder earns them. To avoid double taxation, the federal government subjects dividends to a gross-up, which is then offset by federal and provincial non-refundable dividend tax credits. As a result, dividends end up receiving about the same preferential tax treatment as capital gains. In some cases, you can end up with enough tax credits left over from your dividends to apply to tax from other sources. It's important to remember that the gross-up and dividend tax credits don't apply to RRSPs. All the dividends earned within your RRSP are taxed as income when withdrawn, so it doesn't make sense to invest registered funds in dividend stocks. If you'd like some easy-to-understand advice about benefiting from the dividend tax credit, I'd be happy to introduce you to one of my trusted financial planner partners. Kupina Mortgage Team | www.kupinamortgage.com