Dividend income is considered a different stream of income than active business income and is taxed differently. Dividends can have no tax at all when received by a corporation, or they can have a refundable temporary tax called Refundable Dividend Tax on Hand (RDTOH). They can also be flowed through a corporation to its shareholders and the choice to flow it through can affect the tax rate paid by the corporation. For example, if it flows through there is no tax and if it is retained there can be tax. This can all get rather complicated. Here are top-level principles to help you understand. If a corporation is connected to another corporation (i.e. it is part of a group of companies), it can generally receive dividends and pay dividends to other corporations in the group and pay no tax. This makes sense as it allows owners to move money within the group of companies they own and not pay tax. They can make business decisions to move money rather than tax decisions to move money. If a corporation holds what we call a portfolio investment in another corporation (i.e. it is not part of a group), there is a tax when the corporation receives the dividend income. This tax can be refundable though if the dividend income is passed to another corporation or to individual shareholders. This also makes sense as it taxes passive income and makes it less expensive for tax purposes to pass this passive income on rather than keep it. The playing field is a little different if the dividends are from an international source instead of from a domestic source. International group dividends are usually treated as tax-free transfers but the timing of the tax and the timing of the cash flow can be disconnected. This is because the tax rules try to tax investment income overseas when it is earned, not when it is received. The complex set of rules for this are called “foreign accrual property income” (FAPI) rules. Withholding taxes on foreign dividends can also apply and will be covered in a future FAQ.