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Dividends - Possible Reduced Government Benefits
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Personal Tax -> Dividend tax credits -> Reduction of benefits

Government Benefits May be Affected by Dividend Gross-up

Eligible Canadian dividends are increased by 38% for inclusion in income, resulting in increased net income for tax purposes.  See the enhanced dividend tax credit article for details.

The net income amount is often used in calculating eligibility for income-tested benefits such as Pharmacare, Guaranteed Income Supplement and other benefits.  For taxpayers who are in lower tax brackets, but have these dividends as a portion of their income, these benefits may be reduced.  For every $1,000 of actual dividends received, the net income for tax purposes is $1,380.  Canada and each province/territory have different net income thresholds for different social programs.  If you are in a low tax bracket and receive income from dividends, you should review your finances to avoid jeopardizing government benefits.

See the comparison of taxes payable for seniors, which compares a senior with eligible dividend income to a senior with interest or other investment income.  With the eligible dividends, even when the Old Age Security is clawed back, the total taxes including the clawback are less than when interest income is received.

Check out our Investment Income Tax Calculators to see the effect of moving income from income such as interest and foreign dividends to Canadian Dividends.

Revised: October 26, 2023


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