How is income taxed?

• Interest income is taxable even if it hasn't been paid out, such as incurred interest.
• Only half of gains are taxable.
• Given that companies that pay out dividends also pay income taxes, tax legislation stipulates that shareholders may claim dividend tax credits. Eligible dividends are treated differently from non-eligible dividends. In summary, eligible dividends come from business income taxed at the basic corporate tax rate, while non-eligible dividends arise from business income taxed at the preferential rate.

  Eligible dividends are grossed up by 45% for dividend tax credits of 19% at the federal level, 11.9% in Quebec and, for the time being, 5.13% in Ontario.

  Non-eligible dividends are grossed up by 25%, for dividend tax credits of 13.33% at the federal level, 8% in Quebec and 5.13% in Ontario.