Dividend Tax Credit

Dividend Tax Credit

In Canada, a tax credit that reduces one's tax liability if one receives dividends from a company. The credit is 13.33% of the value of a dividend for Canadian federal taxes, with additional credits at the provincial levels. The dividend tax credit treats a dividend as 125% of its actual value. For example, suppose one receives $1000 in dividends and would otherwise owe 22% (or $220) in taxes. The federal dividend tax credit would take 125% of the $1000 (or $1250) and reduces one's tax liability of 13.33% of that amount. 13.33% of $1250 is $166.63, which means that one would only owe $56.37 ($250 - $166.63) in taxes on the dividend at the federal level. One may owe less if the province applies its own dividend tax credit. This credit exists in order to avoid double taxation of dividends.
References in periodicals archive ?
Under Canadian tax legislation, Canadian resident individuals who receive eligible dividends are entitled to an enhanced gross-up and dividend tax credit on such dividends.
An eligible dividend paid to a Canadian resident is entitled to the enhanced dividend tax credit.
It taxes shareholder income as it is earned and provides relief through the dividend tax credit and the partial tax-exemption of capital gains when income is taken out of the corporation.
The dividend tax credit will be abolished and up to PS5,000 of dividends each year will be tax free.
A dividend tax credit mitigates the tax, however, the net income is still $138.
Chancellor George Osborne said the Government will abolish the dividend tax credit from April 6 next year and introduce a new Dividend Tax Allowance of PS5,000 a year.
UKIP would also reduce the annual limit for tax relievable pension contributions to PS10,000 gross and reinstate the dividend tax credit at 20%.
With the prospect of seeing Stamp Duty on AIM shares abolished at the start of the next tax year, the tax advantages of investing on AIM could be four-fold: no Stamp Duty, no Capital Gains Tax (CGT), no additional tax on dividend income (any investment dividends are received with a 10 per cent dividend tax credit which cannot be reclaimed) and subject to certain criteria, no IHT.
Bill 17: An Act to Amend the Income Tax Act, which facilitates a child tax benefit that is also applicable for shared custody arrangements, and adjusts the dividend tax credit and deductions for corporations with foreign investment income;
The audit note criticizes the fact that dividends from Canadian corporations qualify for the dividend tax credit even when they are paid out of foreign source income that has not been subject to either Canadian or, in many cases, foreign income tax.
After two years of refusing to comply with The Freedom Of Information Act, Gordon Brown has finally been forced to release the information that he was warned by experts in 1997 that removing the dividend tax credit on occupational pensions would lead to thousands of workers, like former ASW staff, losing most or all their promised pensions.