In terms of the effective tax rates, Canadians can divide their income into three categories: ordinary income, capital gains, and dividends.
Ordinary income includes employment income, business income, property income other than dividends, and other sources of income. Ordinary income is taxed on marginal tax rate.
Capital gains arise on the disposition of capital assets, such as real properties or stocks. Only one half of such gains are tax free. The other half are included in Net Income For Tax Purpose and Taxable Income and taxed on marginal tax rate.
Dividends from taxable Canadian companies are subject to a gross up and tax credit procedure which reduces the effective tax rate on this type of income. There are two types of dividends: eligible dividends and non-eligible dividends. The effective tax rate on eligible dividends is lower than that on non-eligible dividends. Dividends from foreign companies are taxed as ordinary income.