Question

Which of the following will provide the lowest amount of after-tax income for an individual in the top federal tax bracket?

Group of answer choices

$100 of eligible dividends from Canadian corporations

$100 of interest income from Canadian bonds

$100 of capital gains from Canadian stocks

$100 of non-eligible dividends from Canadian corporations

Answer 1

The answer is $100 of interest income from Canadian bonds

The tax rates for an individual in the top federal tax bracket for these four types of income are as below:

Other Income incl. Interest Capital gains Eligible Dividends Ineligible Dividends

33.00%

16.50%

24.81%

27.57%

The top federal tax bracket for capital gains is the least whereas eligible dividends and ineligible dividends rate is higher than capital gains. But the highest tax bracket rate is for other income which includes income from salaries and interest. Hence, the after-tax income from $100 for an individual in the top federal tax bracket will be the lowest in case of interest income.

Federal Personal Income Tax Brackets and Tax Rates

2020 Taxable Income2020 Marginal Tax Rates2019 Taxable Income2019 Marginal Tax RatesOther
IncomeCapital
GainsCanadian DividendsOther
IncomeCapital
GainsCanadian DividendsEligibleNon-EligibleEligibleNon-Eligiblefirst $48,53515.00%7.50%-0.03%6.87%first $47,63015.0%7.50%-0.03%6.87%over $48,535 up to $97,06920.50%10.25%7.56%13.19%over $47,630 up to $95,25920.5%10.25%7.56%13.19%over $97,069 up to $150,47326.00%13.00%15.15%19.52%over $95,259 up to $147,66726.0%13.00%15.15%19.52%over $150,473 up to $214,36829.22%14.61%19.59%23.22%over $147,667 up to $210,37129.0%14.50%19.29%22.97%over $214,36833.00%16.50%24.81%27.57%over $210,37133.0%16.50%24.81%27.57%Marginal tax rate for dividends is a % of actual dividends received (not grossed-up taxable amount).
Marginal tax rate for capital gains is a % of total capital gains (not taxable capital gains).
Gross-up rate for eligible dividends is 38%, and for non-eligible dividends is 15%.
For more information see dividend tax credits.

Federal Basic Personal Amount

2020 Personal Amount (1)2020 Tax Rate2019 Personal Amount2019 Tax Rate$13,22915%$12,06915%