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Small Business Dividend Tax Credit

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Personal Tax -> Dividend tax credits -> Non-eligible Dividend Tax Credit

Non-eligible (small business) dividend tax credit (DTC)

Non-eligible dividends, also known as regular, ordinary, or small business dividends, are any dividends issued by a Canadian corporation, public or private, which are not eligible for the enhanced dividend tax credit.

The non-eligible dividend tax credit rate is used for dividends received from Canadian-controlled private corporations (CCPCs), to the extent that their income is subject to tax at the small business rate.  A portion of dividends from large public corporations may also be classified as not being eligible for the enhanced dividend tax credit and would therefore be classified as non-eligible dividends.

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When an individual receives non-eligible dividends, the amount included in income is 118% (2013 and earlier years were 125%) of the actual dividend.  The additional 18% is referred to as the gross-up.

The Federal 2013 Budget indicated that the then-current dividend tax credit and gross-up factor for these dividends overcompensated individuals for income taxes presumed to have been paid at the corporate tax level on active business income.  For this reason, for dividends paid in 2014 and later years, the gross-up factor was reduced from 25% to 18%, and the tax credit was revised from 2/3 of the gross-up amount to 13/18 of the gross-up amount.  This reduced the federal  DTC rate from 13 1/3% of the grossed-up dividend to 11.017%, and from 16 2/3% of the actual dividend to 13% of the actual dividend.

For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, approximately $43,432 could be earned in 2013 before any federal taxes were payable.  For the maximum amounts that could be earned federally and in each province, see the table in the article on alternative minimum tax.

Federal & Provincial/Territorial small business dividend tax credit rates

Small Business Dividend Tax Credit Rates as a % of Grossed-up Taxable Dividends

Year Gross-up

Federal

AB(9)

BC(10)

MB(4) NB(5) NL(8) NS

NT

NU

ON(7)

PE(3) QC(6)  SK(1) 

YT(2)

2014 18% 11.017% 3.1% 2.59% 0.83% 5.3% 4.1% 5.873% 6% 3.051% 4.5% 3.2% 7.05% 3.4% 4.03%
2013 25% 13.33% 3.5% 3.4% 1.75% 5.3% 5% 7.7% 6% 4% 4.5% 2.9% 8% 4% 4.51%
2012 25% 13.33% 3.5% 3.4% 1.75% 5.3% 5% 7.7% 6% 4% 4.5% 1.0% 8% 4% 4.51%
2011 25% 13.33% 3.5% 3.4% 1.75% 5.3% 5% 7.7% 6% 4% 4.5% 1.0% 8% 5% 4.51%
2010 25% 13.33% 3.5% 3.4% 2.5% 5.3% 5% 7.7% 6% 4% 4.5% 2.1% 8% 6% 4.45%
2009 25% 13.33% 3.5% 4.2% 2.5% 5.3% 5% 7.7% 6% 4% 4.5% 3.2% 8% 6% 4.45%
2008 25% 13.33% 4.5% 5.1% 3.15% 5.3% 5% 7.7% 6% 4% 5.13% 4.3% 8% 6% 4.45%
2007 25% 13.33% 5.5% 5.1% 3.67% 5.3% 5% 7.7% 6% 4% 5.13% 6.5% 8% 6% 4.45%

Small Business Dividend Tax Credit Rates as a % of Actual Dividends

Year Gross-up

Federal

AB(9)

BC(10)

MB(4) NB(5) NL(8) NS

NT

NU

ON(7)

PE(3) QC(6)  SK(1) 

YT(2)

2014 18% 13% 3.66% 3.06% 0.98% 6.254% 4.84% 6.93% 7.08% 3.6% 5.31% 3.78% 8.319% 4.01% 4.755%
2013 25% 16.67% 4.38% 4.25% 2.19% 6.63% 6.25% 9.63% 7.5% 5% 5.63% 3.63% 10% 5.00% 5.64%
2012 25% 16.67% 4.38% 4.25% 2.19% 6.63% 6.25% 9.63% 7.5% 5% 5.63% 1.25% 10% 5.00% 5.64%
2011 25% 16.67% 4.38% 4.25% 2.19% 6.63% 6.25% 9.63% 7.5% 5% 5.63% 1.25% 10% 6.25% 5.64%
2010 25% 16.67% 4.38% 4.25% 3.13% 6.63% 6.25% 9.63% 7.5% 5% 5.63% 2.63% 10% 7.5% 5.56%
2009 25% 16.67% 4.38% 5.25% 3.13% 6.63% 6.25% 9.63% 7.5% 5% 5.63% 4.00% 10% 7.5% 5.56%
2008 25% 16.67% 5.63% 6.38% 3.94% 6.63% 6.25% 9.63% 7.5% 5% 6.41% 5.38% 10% 7.5% 5.56%
2007 25% 16.67% 6.88% 6.38% 4.59% 6.63% 6.25% 9.63% 7.5% 5% 6.41% 8.13% 10% 7.5% 5.56%

In some provinces, the dividend tax credit is based on a % of the federal gross-up, and in others it is based on a % of the taxable dividend.  As far as we know, as of March 29, 2014, only Alberta, BC, Manitoba, Newfoundland & Labrador, Ontario, Quebec, PEI and Saskatchewan have revised their income tax acts in regard to the reduction in the gross-up to 18%.  Yukon's calculation for the dividend tax credit includes the % gross-up in the calculation.  For other provinces, the rates above will be applicable if there are no legislative changes to their income tax acts.

(1) SK rate revised by 2014 Budget.  See SK non-eligible dividend tax credit article.
(2) YT rates as per Bill 92 passed December 10, 2010.  Dependent on corporate income tax rates, personal income tax rates and gross-up %.
(3) PEI dividend tax credit rate for 2013 revised, as per the PEI 2013 Budget.  Dividend tax credit rate for 2014 revised as per Bill 7.
(4) MB dividend tax credit rate for 2014 will be 0.83% of taxable dividend, or 0.98% of the actual dividend, as per the MB 2013 Budget.
(5) NB dividend tax credit for 2014 assumes that they will retain the 5.3% rate
(6) QC announced in July 2013 that they would revise the tax credit rate for 2014.
(7) ON announced November 7, 2013 that the tax credit would be revised to 4.5% of the taxable dividend instead of being calculated as a % of the federal tax credit.  Also, the ON surtax will be calculated before deducting dividend tax credits.
(8) NL announced in their 2014 Budget that the tax credit would be reduced from 5% to 4.1% of the taxable dividend, effective July 1, 2014.
(9) AB announced December 20, 2013 (pdf) that their tax credit rate would change from 7/40 of the gross-up amount to 13/64 of the gross-up amount.
(10) BC new rate of 3.06% of taxable dividend found on their Dividend Tax Credits page was an error - they have not made any legislative changes regarding the reduction in gross-up.

Rates are as known March 29, 2014

See the following example of the calculation of the taxes payable on small business dividends for taxpayers in the lowest tax brackets:

Small business dividend tax credit using
Ontario tax rates for 2009

Tax
Bracket 1

Tax
Bracket 2

Combined federal + Ontario tax rate

21.05%

24.15%

 
Dividends eligible for enhanced DTC

$100.00

$100.00
Gross-up 25.00

25.00

Taxable dividend $125.00 $125.00
 
Federal + ON tax (at 21.05% & 24.15%)

$26.31

$30.19
Less dividend tax credits:
Federal 13.333% x $125 $16.67   $16.67  
Ontario 5.13% x $125 6.41   6.41  
Total dividend tax credits   $23.08   $23.08
Tax payable on dividends $3.23 $7.11
 
Marginal tax rate 3.23% 7.11%

 

Revised: April 22, 2014

 

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