Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
“Consider paying planned dividends by the end of 2013.”
This Tax Tip replaces Tax Tip 13-16R by adding Manitoba rates and updating Ontario tax rates to reflect Ontario’s November 2013 confirmation that it will adopt the changes to the dividend gross up and tax credit proposed in the 2013 Federal Budget.
With the scheduled increase in dividend tax rates, as highlighted for selected provinces in the table below, the need for tax planning before the end of 2013 becomes even more important, particularly for owners of private corporations[1].
|
2013 Top Marginal Rate on Eligible Dividends |
2014 Top Marginal Rate on Eligible Dividends |
2013 Top Marginal Rate on Non-Eligible Dividends |
2014 Top Marginal Rate on Non-Eligible Dividends
|
BC |
25.78% |
28.68% |
33.71% |
37.98% |
Alberta |
19.29% |
19.29% |
27.71% |
29.87% |
Manitoba |
32.26% |
32.26% |
39.15% |
40.77% |
Ontario |
33.85% |
33.85% |
36.47% |
40.13% |
Profits earned within a corporation may be held in the corporation and incur tax at only the corporate level until they are distributed by the corporation to an individual shareholder. As such, tax deferral can be obtained by leaving the profits in the corporation or a holding company connected with the corporation.
Why would a private business owner pay a dividend and incur a second level of tax?
In order to save the increase in tax rates of 4.27%, 2.16%, 1.62 or 3.66% from 2013 to 2014 in BC, Alberta, Manitoba and Ontario, respectively, it may be worthwhile to consider paying dividends by the end of 2013.
If you have any questions regarding the scheduled increase in the tax rates on dividends, or would like to discuss tax planning opportunities that may exist prior to year end, please contact your TSG representative.
[1] The rates apply to the actual amount of taxable dividends received from taxable Canadian corporations and are the maximum combined federal and provincial marginal tax rates for dividend income based on known rates at November 15, 2013.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.