Passive income from dividends. Is it a mistake?

[themaxx]

I would be happy to do it, but I'm terrible at posting charts. If you would be good enough to do it, I would really like to participate in the discussion!!

If I could of, I would of. Remember, I'm old. Old men suck at newfangled gizmos.
But I'm sure that out of all the participants in this discussion thus far, theres surely one technologically adroit enough to find and post such a chart.
Important point is to pull up such a chart and look at it.

 

[mitchell76]

If I could of, I would of. Remember, I'm old. Old men suck at newfangled gizmos.
But I'm sure that out of all the participants in this discussion thus far, theres surely one technologically adroit enough to find and post such a chart.
Important point is to pull up such a chart and look at it.

I'm old as well, who's bad at technology. Hopefully a younger guy in this thread, can help out with charting etc??

 

[Zoot Allures]

I 100% don't agree with this strategy, but I'm enjoying the debate......LMAO If you need money how can you withdraw money from a GIC,when a GIC is not liquid??

You ladder the gic. They come due whatever time period you chose IE once a month, one every week or even every day.
It is a common way to buy GICs for steady income

In my scenario the ones due in the end of the 5 year cycle would gain the most interest as the longer the gic the greater the interest
the holder will pay which is great if rates drop not great if they rise

this is a great discussion . Everything I hoped for when I started

My brain is getting tired LOL

 

[Zoot Allures]

Want to REALLY enjoy the debate?
Pull up a chart comparing any, or all, of the big 5 Cdn Banks to the TSE for say, the past 30 years. Post the chart here & we can all discuss. Maybe also throw in BCE and ENB, for fun.

Great idea. Especially the 30 year idea as that compares performance through economic cycles

 

[HungSowel]

Yes, but if you're in the lowest or second lowest marginal tax rate, you pay literally no income tax in your non-registered account, due to the canadian dividend tax credit!!

It's -6.86% not 6.86%!! In other words you could have $50K worth of cdn dividend income in your non-registered acct, and literally pay no income tax on this, except for the cdn health premium!!

The DTC is 6.86% not -6.86%, a -6.86% tax credit is a double negative so it means you pay 6.86% more.

The DTC is not a refundable tax credit, you need other income to apply it against. If your only income is 50k worth of qualified dividends then you get no DTC and implicitly pay ~25% tax which is the corporate tax rate which is higher than the 20% you would pay for regular income.

 

[HungSowel]

You ladder the gic. They come due whatever time period you chose IE once a month, one every week or even every day.
It is a common way to buy GICs for steady income

In my scenario the ones due in the end of the 5 year cycle would gain the most interest as the longer the gic the greater the interest
the holder will pay which is great if rates drop not great if they rise

this is a great discussion . Everything I hoped for when I started

My brain is getting tired LOL

There are cashable GICs that have ~1% lower interest rate, not very attractive but it is an option. Right now you can park your money in a Wealth Simple account and earn ~5.5% interest IIRC. You can also buy a cash ETF like CASH.TO which gives ~5% interest rate, this is the highest risk move as the funds are not FDIC insured.

I currently have non-committed funds parked at Tangerine earning 5.5% interest but that is a promotional rate that ends in September, after September I will likely move the funds to Wealth Simple. I will probably move money between Wealth Simple and Tangerine based on the best promotional rates.

 

[craig_hoxton]

You can also buy a cash ETF like CASH.TO which gives ~5% interest rate, this is the highest risk move as the funds are not FDIC insured.

This is true but for CASH.TO to fail, things have to go very, very, very wrong. The last bank failure in Canada was 1923. I'm from the UK and remember seeing people stood in line outside branches of Northern Rock.

 

[HungSowel]

This is true but for CASH.TO to fail, things have to go very, very, very wrong. The last bank failure in Canada was 1923. I'm from the UK and remember seeing people stood in line outside branches of Northern Rock.

I agree with you, but those who are into interest are on the risk adverse side of the spectrum so it is likely a consideration to them.

 

[K Douglas]

In an article in the Globe & Mail, Benjamin Felix claimed focusing on dividend stocks would prevent from getting an optimal return and that index ETF investing is a lot better. Ben's says focusing on dividend investing leads to poor diversification.

Are dividends taxed 100% assuming you made the minimum $ to get into higher tax bracket?
While capital gains have higher taxes they are taxed 50%

Dividends have favorable tax treatment compared to interest and capital gains provided your taxable income is under $112K

Taxable income of $85,000
Interest/other income 29.7%
Capital gains 14.85%
Eligible dividends 6.4% (must be Canadian owned public companies)

Taxable income of $125,000
Interest/other 43.4%
Capital gains 21.7%
Eligible dividends 25.4%

So if you a retiree and have average income you would far prefer your domestic portfolio to pay out dividends as opposed to capital gains. If you want to hold US/foreign assets you're best to index invest and earn capital gains.

 

[ValuedSupporter]

The DTC is 6.86% not -6.86%, a -6.86% tax credit is a double negative so it means you pay 6.86% more.

The DTC is not a refundable tax credit, you need other income to apply it against. If your only income is 50k worth of qualified dividends then you get no DTC and implicitly pay ~25% tax which is the corporate tax rate which is higher than the 20% you would pay for regular income.

Sigh....wrong, you are just wrong. Try referencing where you get your answers.

taxtips.ca $50K dividends, Ontario, $0 tax.
$80K? $622 in 2024.

This is a BASIC calculator. Use the detailed one for better answers.

TaxTips.ca - 2025 & Earlier Basic Tax Calculator - compare 2 scenarios

TaxTips.ca - 2025 & Earlier Basic Canadian income tax calculator - Total taxes for each province, marginal tax rates for capital gains, eligible and non-eligible Canadian dividends, and other income.

www.taxtips.ca

 

[ValuedSupporter]

Ben Felix is (of course) a very knowledgable guy but there are a LOT of wankers out there that misunderstand that every investor has a different objective depending on their situation.

Youtube investing bros are stupid dicks that just repeat his shit over and over again without really understanding the context of what an investor is trying to achieve.

 

[HungSowel]

Sigh....wrong, you are just wrong. Try referencing where you get your answers.

taxtips.ca $50K dividends, Ontario, $0 tax.
$80K? $622 in 2024.

This is a BASIC calculator. Use the detailed one for better answers.

TaxTips.ca - 2025 & Earlier Basic Tax Calculator - compare 2 scenarios

TaxTips.ca - 2025 & Earlier Basic Canadian income tax calculator - Total taxes for each province, marginal tax rates for capital gains, eligible and non-eligible Canadian dividends, and other income.

www.taxtips.ca

View attachment 341822

If the ceremony of paying 0 income tax on your tax return is what you are after then having all income coming from dividends will accomplish that provided that you are in a low tax bracket, but implicitly you are paying ~25% tax rate as what you received is already taxed at the corporate tax rate and you have no other income to apply the DTC against so you are not using the DTC.

Plug in 37k of qualified dividends and 13k of other income, and you will see the tax rate is also ~0 because the DTC tax credit is applied to the 13k of other income, this implies that your actual tax rate is ~25% (corporate tax rate) -6.86% (DTC) = 18.14%

 

[HungSowel]

Dividends have favorable tax treatment compared to interest and capital gains provided your taxable income is under $112K

Taxable income of $85,000
Interest/other income 29.7%
Capital gains 14.85%
Eligible dividends 6.4% (must be Canadian owned public companies)

Taxable income of $125,000
Interest/other 43.4%
Capital gains 21.7%
Eligible dividends 25.4%

So if you a retiree and have average income you would far prefer your domestic portfolio to pay out dividends as opposed to capital gains. If you want to hold US/foreign assets you're best to index invest and earn capital gains.

All eligible dividends come with an implicit tax rate of ~25%. You need to add 25% to the eligible dividends so 6.4% becomes 31.4% and 25.4% becomes 50.4%. In all scenarios, Capital gains get better tax treatment.

 

[jeff2]

Article is getting old now but still interesting.

You can earn $50K in tax-free dividends, but there's a catch: You can't have a job

Jonathan Chevreau: While early retirement may be a pipe dream for most, some do pull it off and live almost tax-free on dividend income alone. Here's how

financialpost.com

 

[mitchell76]

If the ceremony of paying 0 income tax on your tax return is what you are after then having all income coming from dividends will accomplish that provided that you are in a low tax bracket, but implicitly you are paying ~25% tax rate as what you received is already taxed at the corporate tax rate and you have no other income to apply the DTC against so you are not using the DTC.

Plug in 37k of qualified dividends and 13k of other income, and you will see the tax rate is also ~0 because the DTC tax credit is applied to the 13k of other income, this implies that your actual tax rate is ~25% (corporate tax rate) -6.86% (DTC) = 18.14%

We're not talking about other income, we're just talking about cdn dividend income in a non-registered acct!! In the lowest marginal tax rate, the percentage of cdn dividend tax you would pay is actually -6.86%.

 

[mitchell76]

All eligible dividends come with an implicit tax rate of ~25%. You need to add 25% to the eligible dividends so 6.4% becomes 31.4% and 25.4% becomes 50.4%. In all scenarios, Capital gains get better tax treatment.

Wrong!!

In the bottom two marginal tax rates in Ontario, you pay no income tax on eligible canadian dividends , in your non registered acct, due to the cdn dividend tax credit!!

TaxTips.ca - Ontario 2024 & 2025 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2024 & 2025 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

 

[ValuedSupporter]

All eligible dividends come with an implicit tax rate of ~25%. You need to add 25% to the eligible dividends so 6.4% becomes 31.4% and 25.4% becomes 50.4%. In all scenarios, Capital gains get better tax treatment.

MY GOD, you have zero clue on taxation in Canada.. Please just stop, Capital gains are not taxed for favourable than dividends until about $130k-ish.

Show your work on how capital gains get better tax treatment in all scenarios.

You just have to be trolling.

 

[ValuedSupporter]

If the ceremony of paying 0 income tax on your tax return is what you are after then having all income coming from dividends will accomplish that provided that you are in a low tax bracket, but implicitly you are paying ~25% tax rate as what you received is already taxed at the corporate tax rate and you have no other income to apply the DTC against so you are not using the DTC.

Plug in 37k of qualified dividends and 13k of other income, and you will see the tax rate is also ~0 because the DTC tax credit is applied to the 13k of other income, this implies that your actual tax rate is ~25% (corporate tax rate) -6.86% (DTC) = 18.14%

god you‘re just dumb. You can see how you’re just clueless with any basic tax calculator. You know we’re talking Canadian controlled corporations right?

 

[HungSowel]

god you‘re just dumb. You can see how you’re just clueless with any basic tax calculator. You know we’re talking Canadian controlled corporations right?

You do know that dividends are distributed from a corporation's after-tax income?

 

[ValuedSupporter]

You do know that dividends are distributed based on a corporation's after-tax income?

Irrelevant To my T1. prove your bull shit with math and actual references. This in investing, not personal corporation tax that you keep repeating over and over again in your post history,