Question

marvy held 2 percent of the outstanding shares of a canadian public corporation. the corporation issued an eligible stock dividend in 2022 and capitalized $800,000 of its retained earnings. by how much will marvy's taxable income increase as a result of the dividend?

Answer 1

Marvy's taxable income will increase by $6,080 as a result of the dividend.

Step-by-step explanation:

To calculate how much Marvy's taxable income will increase as a result of the dividend, we first need to determine the amount of the dividend that Marvy will receive.

Since Marvy holds 2 percent of the outstanding shares, Marvy will receive 2 percent of the $800,000 dividend. This comes out to be $16,000.

Now, to calculate the increase in taxable income, we need to consider the tax treatment of eligible stock dividends. In Canada, eligible stock dividends are taxed at a gross-up rate of 38 percent.

This means that Marvy's taxable income will increase by the amount of the dividend multiplied by the gross-up rate: $16,000 * 38% = $6,080.

Therefore, Marvy's taxable income will increase by $6,080 as a result of the dividend.