John Nicola Answers Your Tax Questions: How will the Dividend Tax Rate change in 2022?

Watch Canadian Tax Insights: How High Net Worth Investors Should Navigate Today’s Taxation Environment here.

In his webinar on November 2, 2021, CEO & Chairman, John Nicola, provided exclusive insight into Canada’s taxation environment and explained how to optimize your tax planning strategy in light of current regulations and took the time to answer viewer questions. Each week, we will publish his answers to your questions.


Do you think the Dividend Tax Rate will go up? How likely is it that the government will try to restrict Refundable Dividend Tax on Hand recovery? Should one pay large dividends in advance of the next Federal Budget?


John’s Response:

I would certainly not suggest that one pay large dividends in advance of any budget. If you take a look at history, there was a gap for quite a few years between dividends and other forms of compensation from Canadian-controlled private corporations and the tax rates were lower. So, the blended corporate and personal tax rates on those dividends meant if you could take dividend income you would save five or ten percent total tax, as opposed to taking a salary. Well as you can see from the example, we looked at in our Tax Planning Webinar in November, that’s no longer true. The playing field is already level so it’s hard to imagine the government trying to make it so that it’s against the distribution of dividends.

As far as Refundable Dividend Tax On Hand (RDTOH) is concerned, if you recover RDTOH today you pay almost 60 percent tax, so the only way this works is that you have to defer the collection of the RDTOH to a point where you don’t have much other taxable income. If someone is 40 years old, they may be paying 50  percent tax in a company for 20 or 25 years and think of that as a savings account that they’re going to recover later. The government is collecting the tax now, and so I think from the government’s perspective they are going to look at this and say they’re happy to take the money. I’m not expecting to see a large change in dividend tax rates, and I don’t think it would make sense for people to pay out unusually large dividends.

None of these strategies operate in isolation. What’s key for everyone is to have their unique situation looked at by an accountant who can explain what it would look like and how it would work if they do it versus don’t do it. Generally speaking, I wouldn’t intentionally trigger a capital gain to get a lower rate of tax, unless I had another strategy that would automatically mitigate the tax I just triggered.


This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities commissions.