What is the difference between distributions and dividends? Are they taxed differently?
Distributions are payments you get from a mutual fund or company stock. Funds must distribute any capital gains to shareholders at least once a year. This payment can take the form of cash or additional units. Some companies offer Dividend Reinvestment Plans (DRIPs). Taxation on distributions depends on the type of income received. In addition, distributions may increase or decrease the adjusted cost base.
Dividends are part of a company’s profits that it pays to shareholders in proportion to the total number of shares held. The Board of Directors sets the amount. For common shares, the amount varies. It may skip dividends if business is poor or the directors invest money in things like new equipment or buildings.
Investments held in registered plans – like RRSPs and TFSAs – are not taxed while funds remain in the plan. Speak to a financial representative or tax professional for more information about distributions and dividends, and learn about how investments are taxed on GetSmarterAboutMoney.ca.