Leave a commentNon-eligible, or ordinary, dividends are any dividends issued by a Canadian corporation, public or private, which are not eligible for the enhanced dividend tax credit.
The non-eligible dividend tax credit rate is used for dividends received from Canadian-controlled private corporations (CCPCs), to the extent that their income is subject to tax at the small business rate. A portion of dividends from large public corporations may also be classified as not being eligible for the enhanced dividend tax credit and would therefore be classified as non-eligible dividends.
When an individual receives non-eligible dividends, the amount included in income is 125% of the actual dividend. The additional 25% is referred to as the gross-up.
The Federal 2013 Budget indicates that the current dividend tax credit and gross-up factor for these dividends overcompensate individuals for income taxes presumed to have been paid at the corporate tax level on active business income. For this reason, for dividends paid after 2013, the gross-up factor will be reduced from 25% to 18%, and the tax credit will be revised from 2/3 of the gross-up amount to 13/18 of the gross-up amount. This reduces the Dividend Tax Credit rate from 13 1/3% of the grossed-up dividend to 11%, and from 16 2/3% of the actual dividend to 13% of the actual dividend.
For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, approximately $47,892 can be earned in 2012 before any federal taxes are payable.
|
Small Business Dividend Tax Credit Rates as a % of Grossed-up Taxable Dividends |
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|
Year |
Gross-up |
Federal |
AB |
BC |
MB |
NB |
NL |
NS |
NT |
NU |
ON |
PE |
QC |
SK (1) |
YT(2) |
|
2012 |
25% |
13.33% |
3.5% |
3.4% |
1.75% |
5.3% |
5% |
7.7% |
6% |
4% |
4.5% |
1.0% |
8% |
4% |
4.51% |
|
2011 |
25% |
13.33% |
3.5% |
3.4% |
1.75% |
5.3% |
5% |
7.7% |
6% |
4% |
4.5% |
1.0% |
8% |
5% |
4.51% |
|
2010 |
25% |
13.33% |
3.5% |
3.4% |
2.5% |
5.3% |
5% |
7.7% |
6% |
4% |
4.5% |
2.1% |
8% |
6% |
4.45% |
|
2009 |
25% |
13.33% |
3.5% |
4.2% |
2.5% |
5.3% |
5% |
7.7% |
6% |
4% |
4.5% |
3.2% |
8% |
6% |
4.45% |
|
2008 |
25% |
13.33% |
4.5% |
5.1% |
3.15% |
5.3% |
5% |
7.7% |
6% |
4% |
5.13% |
4.3% |
8% |
6% |
4.45% |
|
2007 |
25% |
13.33% |
5.5% |
5.1% |
3.67% |
5.3% |
5% |
7.7% |
6% |
4% |
5.13% |
6.5% |
8% |
6% |
4.45% |
|
Small Business Dividend Tax Credit Rates as a % of Actual Dividends |
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|
Year |
Gross-up |
Federal |
AB |
BC |
MB |
NB |
NL |
NS |
NT |
NU |
ON |
PE |
QC |
SK |
YT(2) |
|
2012 |
25% |
16.67% |
4.38% |
4.25% |
2.19% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
5.63% |
1.25% |
10% |
5.00% |
5.64% |
|
2011 |
25% |
16.67% |
4.38% |
4.25% |
2.19% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
5.63% |
1.25% |
10% |
6.25% |
5.64% |
|
2010 |
25% |
16.67% |
4.38% |
4.25% |
3.13% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
5.63% |
2.63% |
10% |
7.5% |
5.56% |
|
2009 |
25% |
16.67% |
4.38% |
5.25% |
3.13% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
5.63% |
4.00% |
10% |
7.5% |
5.56% |
|
2008 |
25% |
16.67% |
5.63% |
6.38% |
3.94% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
6.41% |
5.38% |
10% |
7.5% |
5.56% |
|
2007 |
25% |
16.67% |
6.88% |
6.38% |
4.59% |
6.63% |
6.25% |
9.63% |
7.5% |
5% |
6.41% |
8.13% |
10% |
7.5% |
5.56% |
(1) SK rates reduced (SK 2011 Budget) for 2011/2012 in conjunction with the reduction in the small business corporate income tax rate.
(2) YT rates as per Bill 92 passed December 10, 2010. Dependent on corporate income tax rates.
See the following example of the calculation of the taxes payable on small business dividends for taxpayers in the lowest tax brackets:
| Small business dividend tax credit using Ontario tax rates for 2009 |
Tax |
Tax |
|||
| Combined federal + Ontario tax rate |
21.05% |
24.15% |
|||
| Dividends eligible for enhanced DTC |
$100.00 |
$100.00 |
|||
| Gross-up |
25.00 |
25.00 |
|||
| Taxable dividend |
$125.00 |
$125.00 |
|||
| Federal + ON tax (at 21.05% & 24.15%) |
$26.31 |
$30.19 |
|||
| Less dividend tax credits: | |||||
| Federal |
13.333% x $125 |
$16.67 |
$16.67 |
||
| Ontario |
5.13% x $125 |
6.41 |
6.41 |
||
| Total dividend tax credits |
$23.08 |
$23.08 |
|||
| Tax payable on dividends |
$3.23 |
$7.11 |
|||
| Marginal tax rate |
3.23% |
7.11% |
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