It’s frustrating. I’ve been writing about this over and over but still get questions about why dividends should NOT be taxes the same way as income. The main argument here is that dividends have already been taxed once.

A Personal Example

Let’s go back to the most simple case. A friend of mine started his business 3-4 years ago and has been doing very well with it. As is the case with most business owners, he has a lot of expenses that could be considered personal or business. In theory, a car that is used mostly for personal use should NOT be paid by the business….

But let’s take a look at his 2 options:

-either he buys the company with his company which will cost $40,000 for example.

–if he wants to buy it personally, he will end up paying corporate taxes on the profits. Once that is done, he will pay himself a dividend and have to pay MORE taxes on that amount. Basically, he’s paying taxes twice on that $40,000.  That seems a bit unfair doesn’t it?

The same applies to listed stocks that we buy and receive dividends on. That income HAS ALREADY BEEN TAXED. The government should not be taking money over and over on the same income

It’s Coming Though

Obama seems determined to let the Bush tax cuts expire (including those on dividends). It’s happening all around the world in fact as governments become more desperate for revenues.  Just a few days ago, the new left wing government in Quebec announced it would be increasing taxes on dividends. Many publicly disagreed and it’s not clear if they’ll go ahead with it but one major problem is that a majority of people do not understand the impacts of such an increase because they receive little to no such income.

What are your thoughts?