Tax treatment of Canadian dividend paying stocks

Tax treatment of Canadian dividend paying stocks

This is an updated post, to support answers to more reader questions. Read on and enjoy!

I got this email in my inbox recently:

“You write about Dividend Reinvestment Plans (DRIPs) often. I wonder if you would discuss the beneficial tax treatment of dividends and DRIPs. I’m not sure everyone understands the tax benefits or implications!”

Thanks for your comments and suggestions.

Let’s get to my thoughts and answers!

Tax treatment of Canadian dividend paying stocks – How I Invest

You might already know by now, I’m a hybrid investor.

That means to me, the following:

Approach #1 – I own many Canadian dividend paying stocks for rising cashlow/income.

You can always keep tabs on what I own and why here.

Approach #2 – I own a few low-cost ETFs to diversify my porfolio beyond Canadian borders and those individual stocks – mostly for growth. 

At the time of this post, I’m down to just under 30 Canadian stocks in my Canadian dividend income portfolio. 

I figure that’s enough.

I’m likely to pare that list in the coming years to be more concentrated. 

Just like the holdings of many popular Canadian ETFs, I own a mixture of the following (and likely will for the foreseeable future for growing dividend income):

  • 5+ Canadian banks
  • A few life insurance companies
  • A few pipeline companies
  • A couple of telecommunications companies
  • A few utility companies
  • A few industrial companies
  • A few energy companies
  • A handful of Canadian Real Estate Investment Trusts (REITs).

You can find out how I built this dividend income portfolio here – and how you can too!

How I built my dividend portfolio

Tax treatment of Canadian dividend paying stocks

Many DIY investors aspire to have a few income streams to fund early retirement with. 

I am no exception!

Taxable investing is helpful (beyond contributions to your TFSA and RRSP every year), because there is no limit in how much you can invest inside a taxable/non-registered account. 

While I always prioritize maxing out my TFSA (tax-free investing) first, then my RRSP (tax-deferred investing), I also invest in a taxable account and have do so for many years. 

I have done this because I continue to aspire to have multiple income streams and sources to fund semi-retirement with.

In a few years, we hope to have the following personal assets to draw down in no particular order beyond government benefits:

  1. x1 – my defined benefit pension plan from work (about 21 years in at the time of this post).
  2. x1 – my wife’s defined contribution pension plan from work (also about 20 years contributed).
  3. x1 – my Locked-In Retirement Account (LIRA).
  4. x2 – RRSPs.
  5. x2 – TFSAs.
  6. x1 – taxable account.
  7. x1 – corporation; soon to be corporate investment account.

___________

9 accounts. 

Why dividends?

While there are a number of ways to generate passive income (you could have rental properties and more?!), my wife and I decided long ago that dividends from the stock market will work for us.

While dividends are just part of an investors’ total return formula, they are an important part of total return.

Honest Math - Dividends

Reference: Honestmath.com

I like dividends for a few reasons:

  1. I continue to believe there are simply too many unknowns about the future. Having ample income generated from our portfolio will give us financial options/retirement draw down options. 
  2. If we are able to keep our capital intact we don’t need to worry as much about when to sell shares or ETF units when markets don’t cooperate.
  3. “Living off dividends” is my form of forced savings – there is motivation to reach our $1 million portfolio goal and spend the income from it – leave the capital intact for a few years. I intend to spend the dividends or distributions from our portfolio only in the early years of semi-retirement. 
  4. I don’t necessarily believe in the 4% rule. It’s impossible to predict next year let alone 30 more investing years. Seeing dividends roll into my account helps me psychologically to stick to my investing plan.
  5. Dividends are tangible money I can spend if and when I choose without worrying about stock market prices or gyrations.

In addition to my above list, high-quality, established companies that pay dividends are fairly predictable. Not only do these companies pay a consistent dividend – they often deliver growing dividends as well.

Therefore, it is my hope that ever growing dividends (and capital gains) can meet my income needs AND work together to help fight inflation. As consumer prices rise, as the cost of living rises, the companies that deliver our products and services will rise in price along with them.

Finally, I like owning Canadian dividend paying stocks because they are are tax-efficient

With my RRSP growing more with U.S. assets, I tend to keep Canadian dividend paying stocks in my TFSA and inside my non-registered account for favourable taxation.

In a taxable account Canadian dividend paying stocks are eligible for a dividend tax credit from our government. This means taxation on dividends are favourable, it is a lower form of tax; lower than employment income and interest income in many income brackets.

Let’s explore that below!

Tax treatment of Canadian dividend paying stocks – TaxTips and more

I’ve known for some time now that I get a tax-break per se by investing in Canadian dividend paying stocks owned outside registered accounts like my Registered Retirement Savings Plan (RRSP) and my Tax Free Savings Account (TFSA). You should know this too!

Here’s the thing – companies pay taxes on their earnings, just like you and me.

For dividend paying companies those dividends come to us from after-tax profits.

Investors who hold Canadian dividend paying stocks get to offset the taxes already paid by the company in non-registered accounts. (CRA basically subsidizes dividend investors for the tax the corporation already paid on dividends.)

This is performed by a “gross-up” of eligible and non-eligible dividends.

  1. For eligible dividends from Canadian corporations only – they are “grossed up” by 38%. (For dividends to officially be recognized as eligible dividends, they have to be designated as eligible by the company paying the dividend.)
  2. The gross-up rate for non-eligible dividends, as of 2019, is 15%.

Note:  The gross-up and dividend tax credit are applicable to individuals, not corporations.

The punchline is this: Canadian-sourced dividends are profits that you receive from your share of the ownership in a corporation. The gross-up is meant to determine the taxable dividend amount for an individual to include as reportable income. 

You can find more information on this from TaxTips.ca

Here is my simplified example for eligible dividends; those from pretty much all of my Canadian stocks.

  • Let’s say I earned $1,000 in eligible dividends. The CRA gross-up is 38%. The grossed-up dividend income is $1,380.
  • Let’s say my marginal tax rate in Ontario is 40%. That’s about $552 in taxes payable before the Dividend Tax Credit (DTC) is applied.
  • Now for the DTC – there is a federal and a provincial tax credit available to me. The DTC provides a credit for about the same amount of tax the company has already paid. I love using TaxTips.ca as my source for this (no affiliation).
  • The federal DTC is 15.02% of the grossed-up dividend. In this case that would be about $207.
  • Provinces also kick in their own DTC and I live in Ontario. The DTC in Ontario is 10% of the grossed-up dividend.
  • The combined federal and provincial DTC for me is 25.02%.
  • Applying this percentage to the grossed-up dividend total of $1,380 and I get a total dividend tax credit of about $345.

That’s a nice credit but it’s really just tax integration.

The lower my marginal tax rate is however, the lower the taxes payable before the DTC is applied AND the better the tax treatment after the DTC is applied.

Effectively, if you had no other income other than income from Canadian dividend paying stocks in a taxable account, about less than $50,000 in income actually, you wouldn’t pay any income taxes.

Here’s the proof in table and link below!

(Note: The Ontario Tax Rates Table is reproduced with the permission of TaxTips.ca.)

Tax Treatment of Canadian Dividend Paying Stocks

Source: https://www.taxtips.ca/taxrates/on.htm

So, for investors holding Canadian dividend paying stocks inside taxable accounts – you are eligible for the Canadian dividend tax credit. 

So, you can see from the link assuming you have NO other income besides taxable dividend income, in Ontario, you would pay very little income tax (up to a particular point). This is mostly due to the dividend tax credit outlined above. So, essentially, any retiree that relied on just dividend income (and no other taxable income sources in Ontario or many other provinces and territories for that matter) could effectively live off $50,000 or so per year, per person in tax-free income!

If $50,000 to live from tax-free isn’t enough, well, you may have a partner or spouse too. So, between you both, that could be $100,000 per year in combined tax-free income (depending on the province that you live in of course)!

What about foreign dividends?

Foreign dividends are not eligible for the Dividend Tax Credit in Canada in any situation.

Therefore, investors receiving dividends in Canada from a foreign corporation will pay a higher tax rate on them without Dividend Tax Credit relief. Something to think about when it comes to asset location – what stocks to own where!

(Given that foreign corporations are generally not subject to Canadian corporate tax, this means dividends you receive from foreign corporations are not subject to the gross-up, nor are you eligible for the dividend tax credit. Foreign dividends you receive, such as those paid by U.S. or European companies, are fully taxable to you. This tax treatment results in higher taxes payable on a foreign dividend than on a Canadian-source dividend. In addition, there may be withholding tax on the foreign dividends. In a non-registered account at least, you can claim a federal foreign tax credit to a maximum of 15% on your Canadian income tax return.)

How realistic is the tax-free tax treatment of Canadian dividend paying stocks?

Not really 🙂

I mean, sure, it’s quite possible but most early retirees or retirees that I know do not have just/only taxable dividend income from Canadian stocks to file their tax returns with. 

More realistically, they have workplace pensions, or RRSP/RRIF income, then some CPP and OAS as well. Maybe all of these income sources. The point is, knowing how and why various income sources like Canadian dividends are taxed can work in your tax-efficient favour. 

Taxtips.ca has some amazing free calculators here.

Because there are endless ways to structure your portfolio, I encourage you to consider hiring a tax accountant if your tax needs are very complex.

Implications with Dividend Reinvestment Plans (DRIPs)?

There are a few…

I love DRIPs because they help keep my investing activities on autopilot. 

Money comes in, gets reinvested, rinse-and-repeat.

You can read about a long list of pros and cons with DRIPs here.

However, if you’re investing in Canadian dividend paying stocks for income like I am, sometimes in a taxable account outside your TFSA or RRSP, you’ll need to keep track of your Adjusted Cost Base (ACB).

What the heck is that?

Adjusted Cost Base (ACB) is a calculation used to determine the cost of an investment for tax purposes. It’s really only relevant to taxable accounts because you already know the TFSA is a tax-free account, funded by after-tax dollars. You also already know the RRSP is a tax-deferred account.

When you sell an asset, like a Canadian dividend paying stock, you may have a capital gain or a capital loss.  Running DRIPs for long periods of time in a taxable account can complicate your ACB since additional, commission-free, reinvested dividends every month or quarter essentially add new stock purchases to your portfolio. These purchases need to be tracked and included in your ACB.

Thankfully there are a number of spreadsheets and even free online tools you can use for ACB – this is one of my favourites (no affiliation) at adjustedcostbase.ca.

Tax treatment of Canadian dividend paying stocks summary

I currently DRIP most of my Canadian companies. Most of the reinvesting work takes place inside my TFSA and RRSP although some DRIPs do occur in a taxable account.

This means I can take advantage of the Canadian Dividend Tax Credit but I also must keep track of my Adjusted Cost Base in this taxable account.

Over time, I will continue to hold a handful of Canadian dividend paying stocks in a taxable account, taxed on dividend income today but also deferring capital gains for as long as I can.

I will also earn a good portion of my Canadian dividends tax-free (thanks TFSA) as long as I continue to max out contributions to the TFSA before semi-retirement. 

Thanks to readers for these comments and questions. Keep them coming!

Mark

Key source: www.TaxTips.ca.

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

54 Responses to "Tax treatment of Canadian dividend paying stocks"

  1. Hi Mark,

    I’m the owner of the website TaxTips.ca. See https://www.taxtips.ca/contact.htm#repro

    Your reproduction of our Ontario tax rate table above is an infringement of our copyright, because (a) you did not ask our permission to reproduce this table, and even if you had asked and we had given you permission, you would have had to have a LINK to our website with the table.

    You’ve further infringed on our copyright by reproducing this table on the Day 2 video of the Canadian Financial Summit, without mention of where the table came from, and implying that you prepared the table, by saying “this is from a post I wrote recently”.

    If you had simply emailed us to ask permission to reproduce the table, we probably would have said yes, as long as you showed that the table came from TaxTips.ca and provide a link to our website.

    The Canadian Financial Summit has also infringed on our copyright, so I’ve separately sent an email to Kornel and Kyle. I would have copied you but could not find an email address for you.

    Please contact me so that we can determine how you can rectify this. Your suggestions are welcome.

    Reply
    1. Hi Dorothy,
      Because I had replied to this topic earlier, I received a copy of your comment.
      I wanted to thank you so much for your very useful website.
      With my husband being newly retired, just this week I was trying to figure out how much of his RRSP he should withdraw this tax year and I was using your site to check various scenarios for taxable income.
      I also like to compare provinces and am happy that my tax is payable to BC!
      Best wishes.

      Reply
    2. Hi Dorothy,

      Thanks for your comment and I apologize.

      I have used your table, and I have acknoledged your site in my post but I should not be done so without your permission. That’s on me.

      I will email you back and let you know how I will address this with you to your satisfaction of course, happy to do that.

      Sincerely,
      Mark

      Reply
  2. Hi Mark
    Could you please comment in regards to CND listed stocks, ie; Brookfield Asset Mng BAM.A that pay their dividend in US dollars.
    I asked my online broker if I can have the dividends journaled over to my US side of my RSP, they said no.
    Are there any options or am I stuck with automatic currency conversion.
    Appreciate thoughts.
    Thank you
    Wayne

    Reply
    1. Can you not just journal all the shares to your USA side? Then the US dollar dividends would stay in US dollars. Maybe–I do that with other Canadian companies who give dividends in US dollars.
      Or from their website: “”Registered shareholders who are Canadian residents receive their dividends in the Canadian dollar equivalent, unless they request to receive dividends in U.S. dollars.”

      Reply
      1. Yes, but I find it’s always best practice to keep the dividend income in the currency the company issues it. There are exceptions of course depending on how you wish to receive dividends. I also shared that with Wayne as well, the challenge is, all brokerages are different and best to speak to them about what is possible.

        How are things Barbara? What do you make of higher inflation, and higher rates?
        Mark

        Reply
        1. With our Canadian dollar so low right now, you might want the US dollar dividends converted to Canadian.

          I try to personally not pay much attention to inflation. Not in a life stage where we are buying too much, although we did just get a brand new vehicle. I am not much of a car person, its my hubby’s thing. Our last new one was ten years ago, although it was totalled by an errant driver (I still have lots of pain from that) five years ago and was replaced by a used one, same model. The trade in value given to us was only 20% less than we paid for it five years ago. We did get it for a good price back then, private sale. And the dealership is now trying to sell it for 20% more than we paid 5 years ago. Crazy.
          I have been sitting on a lot of cash for way too long, so am looking for opportunities for investments. I hate buying and seeing something drop in price right away. But having the cash definitely lets me sleep easier.
          As a young person in the 1980s, rates still seem so very low to me!

          Reply
          1. I think so for sure…nice time to convert some USD to CDN for investing.

            “I try to personally not pay much attention to inflation.”

            Makes sense to me, besides, it’s something you cannot control.

            I’m sorry to hear about your lingering pain. I hope you continue to mend!

            I think rates are likely to go at least 100 bps higher and they probably should to get consumer spending under control.

            I also like cash on hand. I sleep well at night knowing I have some. 🙂

            Thanks for your thoughts – have a great weekend,
            Mark

            Reply
  3. I read your post today about Tax Treatment of Canadian dividend paying stocks. I wonder if some of your readers realize that dividends from REIT’s are NOT eligible for the dividend tax credit when held in a non-registered account as REIT’s are required tp pay 90% of their income to shareholders. Therefore, the receiver of these dividends are not subject to double taxation. The REIT dividend or distribution as it really is, is treated as ordinary income and subject to full taxation. It would be better to hold REIT’s in a registered account for efficient tax purposes.

    Reply
    1. Barry, good comment, since you’re correct of course about REITs distributing their income in various ways (distributions, interest and ROC (return of capital)). As such, REITs may trigger some tax complications in a taxable account.

      Then again, when income flows through to investors via REITs (because REITs don’t pay much if any corporate tax…), investors need to pick up the tab tax-wise. I recall investors pay tax on most of the distributions as ordinary income in a taxable account – something to be mindful of.

      Thanks again for sharing these details.
      Mark

      Reply
      1. Hi Mark , what is the tax rate on dividends held inside a corporation investment account . I’m hoping to retire in the next 2 years and inside my Corp I would like to have mostly div stocks . I have been told growth are better there but I hate selling stocks prefer spending the dividends . Thanks

        Reply
        1. Hey Jeff,
          Here is a good visual on this page here.
          https://enrichedthinking.scotiawealthmanagement.com/2021/12/14/passive-income-taxation-for-canadian-controlled-private-corporations/

          Generally speaking, I think Canadian dividends are taxed very high but essentially “flow through” to you afterwards in a corporation.

          I’m going to be working with my account this year, to figure out how best to invest inside my corporation and I hope to provide an update on my site in a few months.

          Are you leaning one way or the other? 🙂
          Mark

          Reply
      2. Hi Mark

        I have not been receiving your articles for several months now. Are you still writing them? I hope so and if so, could you start sending them to me again.

        Reply
  4. Just have a small question. When you say whether you can live off of 50000 a year in income, you mean the grossed up amount that’s derived from Canadian eligible dividends? So approx 36000 a year in real take home cash then grossed up to be just under $50k?

    Ps I always love your posts and mailing list. So informative!

    Reply
    1. Thanks, Brandon! 🙂

      I would like to be able to live off $50k per year, so that’s after all taxation.

      If you only earn $50,000 per year, in Ontario, only from Canadian dividend paying stocks then you essentially earn that income tax-free. If you earn money from part-time work, and you have only dividend income from a taxable account, you’ll likely have taxes owing depending upon how much employee income is taxed/how much you make.

      Recall we have a progressive tax system in Canada:
      https://www.taxtips.ca/taxrates/calculating-canadian-personal-income-tax.htm

      “The Canadian tax system is a progressive tax system, which means the tax rates increase as taxable income increases. Everyone pays the lowest tax rate for the amount of their taxable income within the lowest tax bracket. Taxable income in excess of this is taxed at the next higher rate.”

      Hope that helps!
      Mark

      Reply
  5. Hi Mark,

    All our US stocks are in RRSPs but soon (no more contribution room left), some will be in taxable accounts.

    Do you have some article/reference on the tax implications of foreign exchange in taxable accounts?

    Thanks

    Reply
      1. Hi again Mark,

        My main concern is how to specifically account for capital gain/loss in regards to foreign conversions.

        I generally get how to do the capital gain/loss stuff if we buy/sell a US stock. My problem is more when we only convert money and how to account for it for tax purposes.

        Reply
        1. Ah, be careful 🙂

          https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/bonds-debentures-promissory-notes-other-similar-properties/foreign-currencies.html

          “Foreign exchange gains or losses from capital transactions of foreign currencies (that is, money) are considered to be capital gains or losses. However, you only have to report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefit return.”

          Also:
          https://www.advisor.ca/columnists_/michelle-connolly/how-foreign-exchange-impacts-capital-gains/

          Hope that helps!

          Reply
  6. Hi Mark,
    I very much enjoy your blog, thanks! I am a long time DG investor and have been extremely pleased with the results that I have achieved. For the entire time that I have used this strategy I have DRIP’ed through TDDI. For my non-registered accounts I have relied on the calculations from TDDI for the ACB. I have often wondered if this is accurate. For awhile I was using, adjustedcostbase.ca” but found it very cumbersome for the amount of stocks I have.
    I am wondering if you ever heard of someone being challenged by the CRA on the ACB when selling and claiming capital gains on these DRIP’ed stocks, when they have used TDDI or similar for their calulations?

    Thanks so much!

    Reply
    1. Great stuff Dale – always enjoy interacting with readers.

      As far as I know, I don’t know / wouldn’t think CRA would seriously challenge any ACB managed by a brokerage for you unless it was severely out of whack. The key is to keep decent records, including any monitoring of ACB with any brokerage so if/when you are audited then you can demonstrate your gains to a meaningful degree.

      Just my take of course – I don’t want to speak for CRA for sure but they likely have bigger issues to deal with than to nickel and dime a few dollars missed in ACB capital gains discrepancies even if you brokerage is off by a bit. I mean, they are also responsible for sending you your correct T-slips as well right?

      Something to consider!
      Mark

      Reply
    2. I also use adjustedcostbase.ca for my non-registered accounts. I’ve always relied on it when selling securities and after filing taxes for any capital gains/losses I’ve never had any problems.

      I don’t find using that site cumbersome at all, unless you’re buying stocks on the daily, but for the 2-4 times/year I buy or sell, its pretty painless, including when making purchases of US securities.

      Reply
  7. Hello, I find it is much easier to trade Canadian stocks on the US exchanges because they are much more liquid for stocks and options. I have a question: Does CRA treat dividends from Canadian and US companies differently if they are traded on US exchanges versus TSE? Also dos it matter if they are in RSP or TFSA?

    Reply
  8. I did not see any software that calculates the tax correctly if the superficial loss rules apply. This could happen if you trade/own the same stocks in both registered and unregistered accounts, and trade frequently.

    Reply
  9. I am a beginner investor. And would like to have some info about investment portfolios, BEST canadian stocks to buy, info on ETF and which brokerage to go with?
    Thanks

    Reply
    1. Hi Mankirat,

      I cannot offer specific investing advice but I do think for a beginner investor it’s important to educate yourself first. Here are some posts:
      https://www.myownadvisor.ca/saving-investing-resources-newbies/

      https://www.myownadvisor.ca/start-investing-do-these-three-things/

      I should also highlight I have partnerships with some firms, like Bank of Montreal and ModernAdvisor to help you start investing with ETFs. You can read up on the SmartFolio more here including a link to my promotion: You can invest online with BMO and you won’t pay fees on your first $15,000 invested for a year. I keep my promotions current here:

      https://www.myownadvisor.ca/deals/

      You can invest with ModernAdvisor here – ModernAdvisor risk-free for 30 days with a trial account funded with $1,000 of ModernAdvisor’s money.

      https://www.modernadvisor.ca/#_a_MyOwnAdvisor

      I personally own a collection of CDN dividend paying stocks, some U.S. stocks, and some ETFs for extra diversification. So far, so good.

      Reply
  10. Hey mark I’m new to investing as of dec 2017. I have most of my TFSA locked in terms but once they mature I’ll be movin them over to quest trade to make more money then what the bank offers. I’m into ETFs have lots of stocks but I’m wondering if I should take a large sum of money from my eq bank account to invest in more stocks or just wait until my TFSA account mature? Also I’m wondering if you wouldn’t mind sending me a list of your successfulinvestment portfolio so I could maybe review and possibly piggy back off of.

    Reply
    1. Hey Dustin,

      Thanks for your email. I cannot offer specific investing advice here but I can offer a take on how I manage my TFSA. I use a self-directed TFSA. Stay tuned for a post on Monday about that! In terms of what I own, I hold primarily CDN dividend paying stocks inside my TFSA for income and growth. My holdings are companies you’ll find in these posts/pages:

      https://www.myownadvisor.ca/dividends/

      https://www.myownadvisor.ca/december-2017-dividend-income-update/

      Let me know if you have more questions about what I own and why. I can put up a new blogpost on that potentially. Other than some CDN stocks I try and use low-cost ETFs for investing.

      https://www.myownadvisor.ca/indexing/

      All the best with your investing journey and thanks for being a fan.

      Reply
  11. Hi Barbara,

    What is it that you find difficult? I actually love their interface, as I find it straightforward meaning more user friendly, and I am by no means an active day trader, just someone who is somewhat starting their investment journey as I imagine most of the readers on this site are. I don’t use Scotia iTrade or TD DI, so I can’t speak for them, but if I had to choose any other brokerage it would probably be with TD.

    Questrade has always been praised for UI and innovation and being that I have been with them since 2012, I can attest to this. Their online chat is great and email response is within a respectable 48 hours. They are definitely one of, if not the cheapest option for online brokerages as well.

    The only thing I do wish that provided is the ACB and although I do have an account set up at adjstedcostbase.ca I haven’t really dived into the site more thoroughly, so it after I do, it might be a mute point.

    Reply
  12. Vito, when my son was starting investing (he had almost $100,000!) I suggested Questrade, but I am sorry about that. My husband also has a small account with them and I find them so difficult to use.

    Scotia iTrade has so many features that I just love. Just click onto the stock to add DRIP or take it off is just one of them. They always have your adjusted cost basis shown, too. I also use TD Direct invesring, it is easier for US dollar investments, but otherwise I would close that account as they don’t provide enough info.

    Reply
    1. Thanks Barbara. Yes, some brokerages (beyond Questrade) are great with ACB and the ability to “turn on” or “off” DRIPs. Some (brokerages) are better than others of course; they have different features.

      Reply
    2. Unfortunately Scotia iTrade has introduced commissions for bonds of minimum $25+ $1 per $1000 face value. That is a killer for small investors especially for strip bonds. Before the commission was introduced I traded about 100 bonds, after it was introduced I only sold what I had.
      Also for iTrade and most other Canadian brokerages the option assignment commission is a killer too: about $70! I use Interactive brokers exclusively for options.

      Reply
  13. I haven’t set up a DRIP inside my registered accounts just yet, but with respect to my non-registered accounts, dividends I earn are not and will not be set up as a DRIP because of having to calculate the ACB. I simply take the cash and reinvest it myself and one advantage of that is that you decide where to allocate that cost, which means you don’t have to worry about the ACB at all.

    My brokerage is Questrade, and they do synthetic DRIPs, but they do not calculate the ACB, so thats another reason I don’t do it in a non-registered account.

    Reply
  14. Do not all the online brokerages update your adjusted cost base when you DRIP through them?
    I am away so cannot re-check my records but believe that mine does. I wouldn’t do a DRIP if I had to compute all those numbers.

    Reply
    1. No, that’s the downside, not all brokerages calculate your ACB. Most do though, I believe BMO, TD, Scotia and RY do. I don’t know about CIBC Investor’s Edge or others. For the most part, you can trust the brokerage since they issue your tax forms but when in doubt you need to be sure you can explain anything to CRA.

      I wouldn’t do a synthetic DRIP if my brokerage didn’t track it either so I could at least compare my records 🙂

      Reply
  15. Ryan: Great you started saving for your future. Yes, all the tax software programs will calculate your taxes, all you have to do is input the T4’s, T5’s & T3’s. I believe the explanations above and others provided by Mark are to help you decide where the best place is to hold certain types of stocks (for example, hold US stocks in an RRSP or REITS in a TFSA and/or RRSP). Also if your taxable income is less than $40,000 you will pay no taxes on your dividend income.

    Reply
  16. It’s my first year of investing. Now that I have set up my investments my mind has turned to thinking about taxes.

    1. Does a standard tax program (ex. Turbotax) complete these calculations automatically? Assuming I provide it with the right numbers?

    2. I figure brokerages (Questrade, RBC Direct) will provide me with some tax forms. Do these forms automatically calculate my capital gains amount, dividend amounts, other necessary info?

    Thanks for your help.

    Reply
    1. Most brokerages will keep track of your capital gains for informational purposes only. This is not an official number. You must keep track of your adjusted cost base yourself. KEEP ALL YOUR CONFIRMATION SLIPS. The exception to this is if capital gains are made within a mutual fund, then the capital gains are reported on a T3,

      Reply
      1. Great point John. I keep all my tax slips just in case I need to calculate a capital gain or loss. You are correct most brokerages do this and although investors are welcome to use that number, it might not always be accurate.

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    2. Congrats on investing for now and the future Ryan.

      1. All standard online or software programs, like TurboTax, do your tax calculations automatically based on your data entries. If you keep reading my blog, I’ll likely have a few FREE tax software codes to giveaway in 2017.

      example:
      https://www.myownadvisor.ca/turbotax-giveaway-and-more-great-tax-filing-tips/

      2. Your discount brokerages will provide you with your tax forms. Those tax forms will help you calculate things like eligible dividends, interest earned, etc.

      To avoid unnecessary tax headaches, you should consider organizing your investments this way (see below) to make your investments as tax efficient as possible:
      https://www.myownadvisor.ca/dividends/

      For me…anyhow….

      “In Summary – Asset Location Preferences:
      Non-Registered = Canadian dividend paying stocks.
      TFSAs = Canadian dividend paying stocks and Canadian REITs. .
      RRSPs = U.S. dividend paying stocks and U.S.-listed ETFs.”

      Happy investing,
      Mark

      Reply

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