TaxTips.ca - Prince Edward Island dividend tax credit

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Atlantic Provinces -> Prince Edward Island

Prince Edward Island Income Tax Act s. 20

Prince Edward Island dividend tax credit

Prince Edward Island's dividend tax credit rates are stated in their Income Tax Act as a percentage of the gross-up on the dividends.

The PEI government indicated in their 2006 budget that the dividend tax credit would be adjusted to preserve the integration between the corporate and personal income tax systems.

Eligible dividends

Dividends eligible for the enhanced dividend tax credit currently have a gross-up of 45%. This means that 145% of the actual dividend amount is included in taxable income. The Federal 2008 Budget proposes to reduce the gross-up rate and the dividend tax credit rate for dividends eligible for the enhanced dividend tax credit. This will increase the marginal tax rate on eligible dividends, beginning in 2010. See the Enhanced Dividend Tax Credit article for details.

The PEI dividend tax credit on eligible dividends was set at 33.8333% of the gross-up amount for years up to 2009, so as the gross-up rate is reduced, the dividend tax credit rate would have been reduced. However, Bill No. 26, Income Tax (Dividend Tax Credits) Amendment Act was passed. This bill revises the % of gross-up each year, as shown in the table below.

PEI Dividend Tax Credit (DTC) for Eligible Dividends
Year	Gross-up %	DTC as % of Dividend Gross-up	DTC as % of Taxable Dividend	DTC as % of Actual Dividend
2007 to 2009	45%	33.8333%	10.50%	15.225%
2010	44%	34.36%	10.50%	15.118%
2011	41%	36.11%	10.50%	14.805%
2012	38%	38.13%	10.50%	14.489%

To see the marginal tax rate for eligible dividends, see the marginal tax rates page.

Small business dividends

Bill No. 16, An Act to Amend the Income Tax Act, which received Royal Assent in March 2008, changes the non-eligible, or small business, dividend tax credit percentages for 2010 and 2011. These revised rates are reflected in the table below.

The gross-up on small business dividends is 25%. This means that 125% of the actual dividend amount is included in taxable income. The PEI small business corporate tax rate, effective April 1 of each year, is:

	2007 4.3%
	2008 3.2%
	2009 2.1%
	2010 1.0%

The dividend tax credit as a % of the dividend gross-up amount is being reduced each year, to reflect the reduction in the small business corporate tax rate.

The revisions to the small business dividend tax credit are indicated in the table below.

PEI Dividend Tax Credit (DTC) for Small Business Dividends
Year	DTC as % of Dividend Gross-up	DTC as % of Taxable Dividend	DTC as % of Actual Dividend
2007	32.5%	6.5%	8.125%
2008	21.5%	4.3%	5.375%
2009	16.0%	3.2%	4.000%
2010	10.5%	2.1%	2.625%
2011	5.0%	1.0%	1.250%

To see the marginal tax rate for small business dividends, see the marginal tax rates page.

Revised: October 29, 2011

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