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Vancouver-based portfolio manager Adrian Mastracci, of Lycos Asset Management, says it’s rare to have the kind of portfolio that could generate $50,000 of dividend income and not also have other kinds of income (notably employment or pension income). He points out that if you can generate an average 4 per cent dividend income, you’d need more than $1 million in non-registered stocks to generate such income.

But to really benefit from all this — even assuming no other large sources of income — you really have to be in the lower tax brackets. According to this site at TaxTips.ca, the tax rate (combined federal/Ontario) on eligible Canadian dividends in 2016 was actually minus 6.86 per cent on the first $41,536 of such income. Between $41,536 and $45,282 the tax rate is minus 1.2 per cent. Waters says that merely shows the power of the dividend tax credit at lower tax rates exceeds the lowest marginal tax rates.

Those tax rates are much less than the capital gains rate of 10.03 per cent and 12.08 per cent in those first two brackets. Between $45,282 and $73,145 the tax rate on eligible Canadian dividends is still a modest 6.39 per cent (compare to 14.83 per cent for capital gains in that bracket, and a whopping 29.65 per cent for interest or other income in that bracket.) From there, the combined tax rate on eligible dividends steadily rises, reaching as high as 39.34 per cent for those making $220,000 or more in Ontario.

Waters agrees that for most people, it’s somewhat unrealistic to have zero income other than dividends, although it can come up if children are the beneficiaries of a trust that flows out eligible dividends, for example (being mindful of income attribution rules). Still, the key takeaway is that the dividend tax credit can provide very low effective tax rates for individuals in the lower marginal tax brackets.

The rest of us should scrutinize the tax brackets and tax treatment of investment income in each of those brackets and try to optimize it all. Of course, Ottawa is always changing the rules in midstream so it’s hard to plan too far ahead. While it largely stood pat in the recent federal budget, its moves to address “tax fairness” may have impacts later this year.

Jonathan Chevreau is founder of theFinancial Independence Huband co-author of Victory Lap Retirement. He can be reached at jonathan@findependencehub.com