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Tax Treatment of Dividends

The federal government announced changes to the dividend gross-up factor and the dividend tax credit for eligible dividends in response to the reduction in federal corporate tax rates from 19% in 2008 to 15% in 2012. The budget proposes to adopt the gross-up factor reduction applicable to eligible dividends received by Ontario individuals. Ontario proposes to maintain its plan to increase the tax credit rate on grossed-up eligible dividends from 7.0 percent in 2008 to 7.4 percent in 2009, and 7.7 percent in 2010 and subsequent years. The proposed adjustments are summarized below:
 

  2008 2009 2010 2011 2012
Federal and Ontario dividend gross-up 45% 45% 44% 41% 38%
Federal dividend tax credit on grossed-up dividend 18.97% 18.97% 17.97% 16.44% 15.02%
Ontario dividend tax credit on grossed-up dividend 7.0% 7.4% 7.7% 7.7% 7.7%
Top federal rate 14.6% 14.6% 15.9% 17.7% 19.3%
To Ontario rate 9.4% 8.5% 7.8% 7.6% 7.4%
Combined proposed top rate: federal and Ontario 23.96% 23.06% 23.65% 25.33% 26.74%
(Other provincial rates may differ.)


Source: Soberman LLP, Chartered Accountants, Toronto, ON, www.soberman.com