Question

On the death of Martin Meryk, his shares in Meryk Limited, a CCPC, were transferred to a 60) graduated rate estate (GRE). During 2020, the GRE receives non-eligible dividend income fromMeryk Limited in the amount of $200,000. Martin's will requires that one-half of the dividends be distributed to his wife, Marta with the remainder retained in the GRE. Marta has no income other

than what she receives from the trust. Which of the following statements is correct?
A) The Taxable Income is the same for Marta and the GRE.B) The income retained in the GRE is taxed at a federal rate of 33 percent.
C) The federal dividend tax credit is available to Marta, but not to the GRE. D) The federal tax payable is the same for Marta and the GRE.

Answer 1

The correct statement regarding the tax implications for Marta and the GRE upon receiving non-eligible dividend income from Meryk Limited is that the federal dividend tax credit is available to Marta, but not to the GRE. Marta can mitigate double taxation with this credit, while dividends retained in the GRE are taxed at the estate's marginal rate.

Step-by-step explanation:

This pertains to the tax implications for a Graduated Rate Estate (GRE) and a beneficiary, Marta, upon receiving dividends from a Canadian Controlled Private Corporation (CCPC) after the death of Martin Meryk. When the GRE receives a non-eligible dividend income of $200,000, half of this amount is stipulated to be distributed to his wife, Marta, with the remainder retained in the GRE. The correct statement is: C) The federal dividend tax credit is available to Marta, but not to the GRE. This is because individuals, including Marta, are entitled to a federal dividend tax credit on the non-eligible dividends received, which mitigates the impact of double taxation on dividend income. The graduated rate estate does not benefit from this tax credit, and dividends retained within the GRE are subject to taxation at the estate's marginal rate. Furthermore, the income tax at the federal level for retained income in the estate does not necessarily equate to a flat 33 percent, as this depends on the marginal tax rate of the estate itself.