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Tax Comparison Seniors Investment Income 2016 - Canadian Dividends vs Interest

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Personal Tax -> Dividend tax credits -> 
Tax Rates  -> Tax Comparisons  ->  Tax comparison for seniors with investment income -> 2016

Seniors Tax Comparison: Canadian Dividends vs Other Investment Income 2016

The table on this page compares taxes payable by province in 2016 for two different types of income:

bulletCanadian dividends eligible for the enhanced dividend tax credit, and
bulletother income, such as interest and foreign dividends.

To the above income we add:

bullet$6,846 of OAS - this is the annual max for 2016 based on Jan to Jun 2016 rates
bullet$7,975 of CPP retirement income - this is the average for 2016
bullet$24,000 of pension income that is eligible for the pension income tax credit

The calculations assume that the income is received by a single senior. The tax rates used are as known on June 14, 2016.

Notes:
     - The clawback of OAS reduces taxable income, and is included in taxes payable.
     - BC taxes payable include MSP premiums payable for 2017 based on 2016 income.
     - Ontario - includes Ontario Health Premium.
     - QC includes health contribution, contribution to the health services fund, and prescription drug insurance plan premiums.

Income
Type
Annual
Amount
OAS $6,846
CPP 7,975
Eligible Pension Income 24,000
Total before investment income   $38,821

The first comparison uses $30,000 of eligible dividends compared to $30,000 of other income.

Income
Type
Annual Income
Case A
Dividends
Case B
Interest
Income from above 38,821 38,821
Eligible Dividends 30,000 nil
Interest Income nil 30,000
Total Income 68,821 68,821
Gross-up 11,400 nil
OAS Clawback -970 nil
Taxable Income 79,251 68,821
 

The following table compares the taxes payable on the above incomes - the taxes payable include any applicable OAS clawback.

Province/
Territory
Taxes Payable Increase
in Taxes
Increase
as % of A
Case A
Dividends
Case B
Interest
AB 8,190 14,107 5,917 72%
BC 7,803 13,936 6,132 79%
MB 12,055 16,428 4,373 36%
NB 10,047 16,345 6,298 63%
NL 12,583 16,092 3,509 28%
NS 12,251 17,051 4,801 39%
NT 5,485 12,132 6,647 121%
NU 6,437 10,801 4,364 68%
ON 8,074 13,886 5,812 72%
PE 11,263 16,744 5,481 49%
QC 13,498 18,429 4,931 37%
SK 9,256 15,329 6,074 66%
YT 6,392 13,282 6,890 108%

You can see above that in a couple of the territories, more than double the income tax is payable with interest instead of eligible dividends.

The next comparison uses $50,000 of eligible dividends compared to $50,000 of other income.

Income
Type

Annual Income

Case C
Dividends
Case D
Interest
Income from above 38,821 38,821
Eligible Dividends 50,000 nil
Interest Income nil 50,000
Total Income 88,821 88,821
Gross-up 19,000 nil
OAS Clawback -5,110 -2,260
Taxable Income 102,711 86,561
 

The following table compares the taxes payable on the above incomes - the taxes payable include any applicable OAS clawback.

Province/
Territory
Taxes Payable Increase
in Taxes
Increase
as % of A
Case C
Dividends
Case D
Interest
AB 13,342 22,162 8,819 66%
BC 13,340 21,812 8,471 64%
MB 19,496 25,740 6,244 32%
NB 16,147 25,294 9,146 57%
NL 20,172 25,033 4,861 24%
NS 19,365 26,234 6,869 35%
NT 11,017 20,162 9,145 83%
NU 12,580 18,378 5,798 46%
ON 14,567 22,200 7,633 52%
PE 17,850 25,932 8,082 45%
QC 21,154 27,970 6,816 32%
SK 14,836 23,861 9,025 61%
YT 11,959 21,244 9,285 78%

Although the higher taxable income with Canadian eligible dividends causes a clawback of the OAS and a higher clawback of the age credit, the taxes payable are still significantly lower.

To see the tax results for your own income situation, and how it would change if the type of investment income changes, use our Income Tax Planning Calculators, in particular the Investment Income Tax Calculator.  However, the Investment Income Tax Calculator does not include BC MSP in the total taxes, because MSP is not actually part of the income tax system.  In the detailed Canadian Income Tax and RRSP Savings Calculator, the BC MSP is shown at the bottom of the calculator, but not included in the total taxes payable.

See also Tax Comparisons by Province and Territory, which compare different levels of employment income for people who are not seniors.

Tax Tip:  Although Canadian dividends increase the OAS clawback, the net tax payable is still much less than with interest or foreign dividends.

 

Revised: November 26, 2017

 

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