You don’t pay tax on MSTY until you actually take the dividends — and when you do, they’re taxed at a reduced dividend rate, not as regular income... Especially if classed as an ROC. So during the DRIP phase, there’s no tax owed — it’s all unrealized growth. Only when you stop compounding and start collecting does the dividend tax apply — and even then, it’s typically far lower than capital gains for many investors. If you're holding MSTY in a TFSA or Roth — it's even better.
There is no dividend tax credit on MSTY. US dividends are taxed as income in Canada. With 100k in dividend income from foriegn sources your marginal tax rate is somewhere between 30 and 45% depending on other sources of income. even if you hold it in a taxfree savings account you pay 15% which is not recoverable.
Chatgpt; You're right — MSTY dividends are foreign income in Canada, so there's no dividend tax credit, and they’re taxed at your full marginal rate (typically 30–45%). But to be clear: You don’t pay that tax until you actually receive the dividends. If you’re compounding through DRIP, there’s no taxable event — the income is reinvested, not distributed to you in cash. Compare that to capital gains, where you pay tax every time you sell
Are you sure. Ask Chatgpt Here is what copilot says. When you receive foreign dividends through a DRIP (Dividend Reinvestment Plan) in Canada, the tax treatment is the same as if you received the dividends in cash—they’re fully taxable in the year earned, even though you didn’t pocket the money.
Tax on Capital Gain (Canada): When you sell MSTY at a profit: 1. Capital gains are 50% taxable → Only half of the gain is included in your taxable income. 2. Your Adjusted Cost Base (ACB) includes DRIP shares → Every time you reinvest a dividend, your cost base goes up by the value of that reinvested dividend. 3. Capital gain = Sale proceeds – ACB → So your taxable gain is reduced by all the reinvested dividends over time. This doesn’t apply if the payout is classified as Return of Capital (ROC). You have to check MSTY’s site or distribution breakdowns — they’ll report what portion of each payout is: Actual dividend income (fully taxable as foreign income in Canada) vs. ROC (not taxed when received, but reduces ACB) I posted two examples one time the ROC was almost .80 of the dividend paid... And during high volatility I think that dropped down to .004 or something.
That doesn't address tax on dividends that are reinvested. Like you said there won't be a lot of capital gains to worry about. When you are doing your comparison of Divy income to cap gains keep in mind that if you are making 100k with dividends you'll probably be paying in excess of 40% tax. And unlike cap gains, with divy income you don't get to choose when you receive your income.