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Personal Tax -> Dividend tax credits -> Reduction of benefitsGovernment benefits could be reduced by change in dividend gross-up after 2005The 2006 increase of the gross-up, from 25% to 45%, on dividends eligible for the enhanced dividend tax credit will result in increased net income for tax purposes. The net income amount is often used in calculating eligibility for income-tested benefits. For taxpayers who are in lower tax brackets, but have these dividends as a portion of their income, these benefits may be reduced. For every $1,000 of actual dividends received, the net income for tax purposes is $1,450. Canada and each province/territory have different net income thresholds for different social programs. If you are in a low tax bracket and receive income from dividends, you should review your finances to avoid jeopardizing government benefits. Starting in 2010, the gross-up will be reduced each year until it is reduced to 38% in 2012. See the enhanced dividend tax credit article for details. Tax tip: Financial planning may avoid the loss of government benefits.
Revised: December 12, 2011
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