A dividend is a distribution of after-tax profits by a corporation to its shareholders. Dividends paid by a corporation are not deductible in the calculation of its corporate income taxes.
Dividends received by an individual are taxable in the hands of the individual – usually at a tax rate lower than the tax rate applicable to other types of income (salaries, interest, etc.).
Shareholders of owner-managed private corporations usually receive their compensation by way of salaries, dividends or a combination of both.
* Note: This post is intended to be a high-level explanation of the taxation of dividends in Canada. Please contact your accountant for advice specific to your situation.
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