Dividend Tax Credit

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

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Taobiz explains Dividend Tax Credit

The pidends an inpidual 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 inpiduals 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 pidend tax credit is 6.4%. The federal pidend tax credit is 13.33%. Her total pidends 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 pidend would then be $78.13 (312.50*25%). She also receives pidend tax credits of $41.67 (312.50*13.33%) and $20 (312.50*6.4%). Therefore, in all her taxes payable on her pidend is $16.46 (78.13-41.67-20). This amounts to only 6.58% of her original pidend.

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

There are both federal and provincial tax credits.