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Enhanced Dividend Tax Credit
In 2005, several important changes to Canada’s dividend tax credit rules were announced. Federal dividend tax credit rates were increased, and as a result effective tax rates now range from as low as 3% to over 30%, depending on the tax payer’s income levels and the Provincial tax rates of shareholders. After 2005, dividends paid by the following type of Canadian companies were eligible for an Enhanced Dividend Tax Credit:
- Public corporations,
- Other resident corporations that were subject to the general corporate tax rate, and
- Canadian-Controlled Private Corporations (CCPCs), to the extent that their income is subject to the general corporate tax rate.
Under the Enhanced Dividend Tax Credit system, the dividend gross-up was increased from 25% to 45% and the federal tax credit rate was increased from 13.33% to 18.97% of taxable income (i.e. 27.5% of the actual dividend). The gross-up rate and federal dividend tax credit rates for small business income remained unchanged at 25% and 13.33% respectively.
The following tables contain the enhanced dividend tax credit rates (DTC) on eligible dividends and small business dividends:
Enhanced DTC Rates on Eligible Dividends:
|
Enhanced DTC rates as a % of Grossed-up dividends (41% 2011) |
Enhanced DTC rates as a % of Actual Dividends |
|||
| Year |
2011 |
2012 |
2011 |
2012 |
| Federal |
16.44% |
15.02% |
23.17% |
20.73% |
| Alberta |
10.00% |
10.00% |
14.10% |
13.80% |
| British Columbia |
10.31% |
9.76% |
14.53% |
13.47% |
| Manitoba |
11.00% |
11.00% |
15.51% |
15.18% |
| New Brunswick |
12.00% |
12.00% |
16.92% |
16.56% |
| Newfoundland |
11.00% |
11.00% |
16.92% |
16.56% |
| Nova Scotia |
8.85% |
8.85% |
12.21% |
12.48% |
| Northwest Territories |
10.78% |
10.2% |
15.19% |
14.08% |
| Nunavut |
5.82% |
5.51% |
8.20% |
7.6% |
| Ontario |
6.40% |
6.40% |
9.02% |
8.83% |
| Prince Edward Island |
10.50% |
10.50% |
14.81% |
114.49% |
| Quebec |
11.9% |
11.90% |
16.78% |
16.42% |
| Saskatchewan |
11.00% |
11.00% |
15.51% |
15.18% |
| Yukon |
15.08% |
15.08% |
21.26% |
20.81% |
Enhanced DTC Rates on Non-Eligible Dividends:
|
Enhanced DTC rates as a % of Grossed-up Non-Eligible Dividends (25% gross-up) |
Enhanced DTC rates as a % of Actual Dividends |
|||
| Year |
2011 |
2012 |
2011 |
2012 |
| Federal |
13.33% |
13.33% |
16.67% |
16.67% |
| Alberta |
3.50% |
3.50% |
4.38% |
4.38% |
| British Columbia |
3.40% |
3.40% |
4.25% |
4.25% |
| Manitoba |
1.75% |
1.75% |
2.19% |
2.19% |
| New Brunswick |
5.30% |
5.30% |
6.63% |
6.63% |
| Newfoundland |
5% |
5% |
6.25% |
6.25% |
| Nova Scotia |
7.70% |
7.70% |
9.63% |
9.63% |
| Northwest Territories |
6% |
6% |
7.50% |
7.50% |
| Nunavut |
4% |
4% |
5% |
5% |
| Ontario |
4.50% |
4.50% |
5.63% |
5.63% |
| Prince Edward Island |
1.0% |
1.0% |
1.25% |
1.25% |
| Quebec |
8% |
8% |
10% |
10% |
| Saskatchewan |
4% |
5% |
6.25% |
5% |
| Yukon |
4.51% |
4.51% |
5.64% |
5.64% |
- What is a Dividend Tax Credit?
- Enhanced Dividend Tax Credit
- Benefits and Limitations of Canada’s Dividend Tax Credit
- Changes Proposed to Dividend Tax Credit Rules and Rates
- Implications of Changes in DTC Rules and Rates