Taxation on Investments

Question 1

Interest Income

Answer 1

Taxed as regular income at individual’s top marginal tax rate

Question 2

Dividend Income

Answer 2

Taxed subject to special gross up and tax credit rules

Question 3

Capital Gains

Answer 3

Taxed favorably, only 50% of the gain is taxed

Question 4

Taxation of Dividends

Answer 4

Dividends paid by Canadian corporations are eligible for an enhanced gross-up and federal dividend tax credit (DTC).

The federal DTC with respect to eligible dividends is 6/11th of the gross up.

Question 5

Ineligible Dividends

Answer 5

Not eligible for the enhanced dividend tax credit and are grossed up by only 15%

Question 6

Taxation of Capital Gains

Answer 6

When an investors buys a security and sells that security for a higher prices, a realized capital gain is subject to tax

50% of the capital gain is subject to tax (50% received tax free)

Capital Gain = Net Sale Proceeds - ACB

Question 7

Unrealized Capital Gains

Answer 7

The increase in value of a security that has not been sold (represents future tax burden)