Rights & Money

Spreading Dividend Income?

I am 68 years old, retired, and Canada Pension Plan (CPP) and Old Age Security (OAS) are my main sources of income. I also receive investment income every year, for a total of about $25,000. However, this year I also received a substantial lump sum (about $15,000) from a company as a dividend. Is there any way to spread this dividend income over a few years to reduce the amount of tax I must pay?

By Olev Edur

Unfortunately, the tax rules are very clear in stating that all dividend income must be declared in the year it is received. That said, given what you say about your own income and the amount of dividends involved, I wonder whether you could save any tax anyway, even by spreading it over several years.

I am going to assume, since you don’t specify, that the dividends you have received are eligible dividends from a Canadian-controlled public corporation, as opposed to non-eligible dividends generally received from private corporations. This being the case, those dividends must be grossed up by 38 percent for the purpose of calculating your income, but then you can claim offsetting dividend tax credits on line 40425 of your federal tax return as well as on line 61520 of your Ontario return (readers should note that other provincial/territorial returns may have this credit on different lines).

Accordingly, $15,000 in eligible dividends would translate into a grossed-up income amount of $20,700. In your home province of Ontario, the lowest marginal tax rate for 2021 applies to income up to $45,142, so if your other income for the year were less than $24,442, you would pay the same tax rate on that dividend income whether it is declared in one year or over several years. In your case, your income is a bit over that threshold, but even so, the additional tax would likely amount to just a few dollars. And of course, you’ll receive that tax credit to more than offset this cost. Just be sure to claim both the federal and provincial credits.


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