How To Calculate Dividend Tax Credits


This is a short little post to remind readers and myself how to calculate the dividend tax credits.

Dividend Tax = (Grossed Up Dividends x Marginal Tax Rate) -
(Grossed Up Dividends x (Federal + Provintial Tax Credit Rates))

Step 1: Figure out the marginal tax rate
Follow this link to TaxTip.ca, select the province or territory, scroll to the bottom, and write down the marginal tax rate.

Step 2: Figure out the grossed-up dividend
Grossed-up dividend is 145% of the dividend received.

Step 3: Figure out the federal and provincial dividend tax credits
The Federal dividend tax credit is 18.97% of the grossed-up dividend income. Add this to the provincial tax credit here:

AB BC MB NB NL NS NT
8.0% 12.0% 11% 12% 6.65% 8.85% 11.5%


NU ON PE QC SK YT
6.2% 6.7% 10.5% 11.9% 11% 11%


Example

  • Personal income = $40,000 in BC
  • Marginal tax rate = 30.65%
  • Received $5,000 of dividends
  • Grossed-up dividends = $5,000 x 145% = $7,250
  • Federal + BC Dividend Tax Credit Rates = 18.97% + 12% = 30.97%
  • Dividend Tax = ($7,250 x 30.65%) - ($7,250 x (30.97%) = $23

Not only do you receive $5,000 worth of dividends free and clear, there is a $23 tax-refund too.

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Comment Number:
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Written by:
Financial Jungle - » BMO. A Poster Child For Cash Flow Leverging?
Posted on:
May 13, 2007 at 5:40 am

[…] Continuing with my dividend tax calculation post, a BC resident in the 30.65% bracket wouldn’t pay any dividend taxes. If you leverage to […]

Comment Number:
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Written by:
Financial Jungle - » Skip Cayman Island. Hop On A Plane to BC instead.
Posted on:
January 10, 2008 at 6:49 am

[…] amount of tax you pay to the government. You can calculate this tax credit by following my post on How To Calculate Dividend Tax Credits. In a nutshell, all dividend incomes are “grossed-up” to 145% of the actual dividends […]