In Canada, dividend taxation follows special rules. The basic principle is that tax is imposed on the entire amount of dividends, as well as on their gross income, depending on their category.

There are two types of dividends in Canada: eligible and ineligible. Eligible dividends are provided by corporations that are not eligible for the small business deduction and are therefore subject to higher taxes. Ineligible dividends, on the other hand, are provided by small business companies.

The tax rate for eligible dividends is 38%, while for ineligible dividends it is 15%. This means that if you received both types of dividends in the amount of, say, $200, your taxable income would be as follows:

For eligible dividends: 200 x 1.38 = $276.
For non-eligible dividends: 200 x 1.15 = $230.
So your total taxable income will be $276 + $230 = $506.

The deduction for eligible dividends is 15.0198% of the taxable amount, and for non-eligible dividends it is 9.0301%. For our example, the deduction will be as follows:

For eligible dividends: 276 x 15.0198% = $41.44.
For the disallowed dividends: 230 x 9.0301% = $20.77.
Foreign dividends are taxed as interest income and are not eligible for a tax deduction.

For a more accurate calculation of your tax based on different types of income and deductions, we recommend that you consult with our tax specialists. We are ready to help you understand the complexities of the tax system and advise you on how to manage your finances in the most efficient way. Don't forget that proper tax management can have an impact on your financial solvency, and we are always ready to help you in this regard.