Dividend as income questions

[Rroo]

After doing a bit of research into being paid small business dividends as the only source of income (as the case of my husband) I have a few questions regarding some the info that I have come across. I have added them below (in purple). Thanks so much for any help!

"Drawing a dividend alone does not provide earned income for RRSP purposes nor does it contribute to the Canada Pension Plan (CPP). Dividends may also affect the availability of other deductions that rely on having earned income (e.g. child care expense deductions)."
Is a person who receives income as dividends not able to contribute to RRSP's even if it is their only source of income?

"Dividends from taxable Canadian corporations are included in your income, along with a 25% gross-up of the amount received. You can then claim a federal dividend tax credit equal to 16-2/3% of the actual dividend. This tax credit reduces your federal income taxes. Each province has a similar mechanism to offset provincial income taxes."
What is the reason for the gross-up and tax credit?

"If you have no other sources of income, you can receive about $26,000 in Canadian dividend income without paying any tax. The amount will vary depending on your province of residence at the end of the year."
Can anyone tell me what the max. amount for not paying any tax is for 2007 (in N.S.) and also, can the amount of pay above the max. be contributed to spousal rrsp (providing their is contribution room) to avoid paying any tax?

[Just Confused]

1/ RRSP's are for "earned" income only. Receiving any type of "investment" income which includes dividends (even from a small buisness). Forget about RRSP's. If you own a business, it becomes your retirement income.

2/ I've always wondered that too. The gross up and tax credit approach just seems to make it more complicated for the average citizen. It's been like that for decdes. There was probably some accounting reason when it was first introduced. But a simple percentage reduction would seem easier to me. You've just got to love CRA and move on with your life.

3/ There is a website called TaxTips.ca It is Canadian and has all the tax rate info by province. Yes, you can put any money you want into your RRSP, providing you have the contribution room. But you may want to save that "room" for some year you're going to be in the top bracket not the lowest. At $26,001 in dividends, you're only paying the lowest rate anyway.

I mentioned in #1... if you run your own business, you won't ever be getting anymore contribution room, unless your husband gets his accountant to set up his company income as salary. There is a thread here on RFD about all that. It's a few weeks old. If I wasn't a newbie (and dumb as post), I'd be able to paste the link to it right here.