Archive for February, 2008

Dividend Taxes are Going up

February 27, 2008

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Budget 2008 does have a sting buried deep in the document and barely mentioned in the mainstream media. In page 290, under the innocuous title of Dividend Tax Credit, the budget states:

The 2007 Economic Statement reduced the general corporate income tax rate to 15 per cent by 2012 and stated that consideration would be given to adjusting the enhanced DTC to ensure the appropriate tax treatment of dividend income.

Budget 2008 proposes to adjust the dividend gross-up factor and DTC rate for eligible dividends, to reflect those corporate income tax rate reductions.

Specifically, Budget 2008 proposes to reduce the eligible dividend gross-up from its current level of 45 per cent to 44 per cent effective January 1, 2010, 41 per cent effective January 1, 2011, and 38 per cent effective January 1, 2012. The enhanced DTC rate will also change on the same schedule, moving from 11/18 of the gross-up amount to 10/17, 13/23
and 6/11.

Translation: the dividend tax rate for the four federal tax brackets are increasing from -5.75%, 4.40%, 10.20% and 14.55% currently to -0.03%, 9.63%, 15.15% and 19.29% respectively by 2012, an increase of approximately 5% at every tax level. Ouch!