The enhanced dividend tax credit lowers the taxes individuals pay on dividends from large Canadian corporations. When Minister of Finance Ralph Goodale introduced this program in fall 2005, it was meant to make the tax treatment of corporations closer to that of income trusts. Federal dividend tax credit rates were increased and as a result effective tax rates range from as low as 3% to over 30% depending on the income levels and Provincial tax rates of shareholders.
There are two categories of dividends that arise from taxable Canadian corporations: eligible dividends and other than eligible dividends.
An eligible dividend is any taxable dividend paid after 2005 to a resident of Canada by a Canadian corporation that is designated by that corporation to be an eligible dividend. A corporation's capacity to pay eligible dividends depends mostly on its status.
Dividends paid by the following type of Canadian companies were eligible for an Enhanced Dividend Tax Credit:
1. Public corporations,
2. Other resident corporations that were subject to the general corporate tax rate, and
3. Canadian-Controlled Private Corporations (CCPCs), to the extent that their income is subject to the general corporate tax rate.
A portion of dividends paid by public corporations will sometimes not be eligible for the enhanced dividend tax credit please refer to the CRA website for restrictions that apply if any. With the enhanced dividend tax credit, a "gross-up" is added to the actual dividend to determine the taxable dividend amount to include in income. Then a tax credit is calculated in order that the tax paid is reduced.
For more information on enhanced dividend tax credits for eligible Canadian dividends, see the CRA guide or contact us Meade Accounting & Taxation at 905-669-1918 by phone, through our website http://www.meadetaxhelp.ca or in person at our offices 601 Edgeley Blvd., Unit 4 Woodbridge Ontario in Vaughan. We are located in the GTA north of Toronto east of Brampton and Mississauga south of Caledon, Bolton, Nobleton, Markham, Aurora & Newmarket. We are favorably located and able to provide our services to Toronto and GTA individuals and businesses. Meade Accounting & Taxation is committed to providing our clients with reliable and dependable tax preparation services, including personal and business & corporate income tax preparation services, accounting, bookkeeping and consulting services.
The information in this article and on this site is not intended to be a substitute for professional advice. Each person's situation differs; we encourage you to seek a professional advisor who can assist you in using the information on this web site to your best advantage