Dividend Tax Credit


Dividend Tax Credit

The amount a Canadian resident applies against their tax owing on the grossed up portion of dividends received from Canadian corporations.

The dividends an individual receives from Canadian corporations are "grossed up" by 25%. This amount is then included on their income tax form as taxable income. Both Canadian federal and provincial governments then grants individuals a tax credit, equal to a percentage of the grossed up amount. This helps to reduce the actual tax payable.

Let's run through an example. Susan Smith has a marginal income tax rate of 25% and is located in Alberta, where the provincial dividend tax credit is 6.4%. The federal dividend tax credit is 13.33%. Her total dividends for the year were $250. On the taxable income portion of her tax return she will include $312.50 (250*1.25). Her approximate taxes owing on this dividend would then be $78.13 (312.50*25%). She also receives dividend tax credits of $41.67 (312.50*13.33%) and $20 (312.50*6.4%). Therefore, in all her taxes payable on her dividend is $16.46 (78.13-41.67-20). This amounts to only 6.58% of her original dividend.

Dividend tax credits are implemented in an attempt to offset double taxing, since dividends are paid to shareholders with a corporation's after-tax profit and the dividends received by shareholders are also taxed.

There are both federal and provincial tax credits.


Investment dictionary. . 2012.

Look at other dictionaries:

  • dividend tax — UK US noun [C or U] ► TAX income tax that has to be paid on dividend payments: »A cut in dividend tax will make shares more popular as an investment. »The dividend tax credit is available for the shareholder to offset against any income tax that… …   Financial and business terms

  • Dividend tax — Taxation An aspect of fiscal policy …   Wikipedia

  • tax credit — n: an amount that may be subtracted from the sum of tax otherwise due and that is distinguished from a deduction applied to gross income in the calculation of taxable income compare exemption Merriam Webster’s Dictionary of Law. Merriam Webster.… …   Law dictionary

  • tax credit — A direct dollar for dollar reduction in tax allowed for expenses such as child care and R&D for building low income housing. Compare tax deduction. Bloomberg Financial Dictionary Additional amount on dividends paid by a company resident in France …   Financial and business terms

  • tax credit — 1) The tax allowance associated with the dividend paid by a company. The shareholder is given allowance for the tax paid at source by the tax credit, at the same rate, 10/90; i.e. a dividend of £90 received by the shareholder had an associated… …   Accounting dictionary

  • tax credit — 1) The tax allowance associated with the dividend paid by a company. The shareholder is given allowance for the tax paid at source by the tax credit, at the same rate, 10 90; i. e. a dividend of £90 received by the shareholder has an associated… …   Big dictionary of business and management

  • Tax credit — The term tax credit describes two different concepts:*The first is a recognition of partial payment already made towards taxes due. *The second is a state benefit paid to employees through the tax system, which has the effect of increasing… …   Wikipedia

  • tax credit — / tæks ˌkredɪt/ noun 1. a sum of money which can be offset against tax 2. the part of a dividend on which the company has already paid tax, so that the shareholder is not taxed on it …   Dictionary of banking and finance

  • tax credit — / tæks ˌkredɪt/ noun the part of a dividend on which the company has already paid tax, so that the shareholder is not taxed on it …   Marketing dictionary in english

  • Child tax credit — Taxation An aspect of fiscal policy …   Wikipedia