Question

this year, anne's taxable income is $45,000. she receives an additional $550 in canadian dividends from her mutual fund investments. the dividend gross-up is 138% and the federal dividend tax credit is 15.02%. using the federal tax rates below, how much net federal tax will anne pay on her dividend income? level of taxable income federal tax rate first $43,561 15% over $43,561 to $87,123 22% over $87,123 to $135,054 26% over $135,054 29%

Answer 1

To calculate Anne's net federal tax on her dividend income, we need to determine her taxable income including the gross-up amount. Anne's grossed-up dividend is $550 * 1.38 = $759. Her total taxable income is $45,000 + $759 = $45,759. Anne's net federal tax on her dividend income is $6,749.88.

Step-by-step explanation:

To calculate Anne's net federal tax on her dividend income, we need to determine her taxable income including the gross-up amount. The gross-up is calculated by multiplying the dividend amount by the gross-up rate (138%), so Anne's grossed-up dividend is $550 * 1.38 = $759. Next, we add the grossed-up dividend to Anne's taxable income, which gives us a total taxable income of $45,000 + $759 = $45,759.

Now let's determine the federal tax rate that applies to Anne's total taxable income. Her total taxable income falls within the first tax bracket ($43,561 and below), which has a tax rate of 15%. So, Anne's federal tax on her total taxable income is $45,759 * 0.15 = $6,863.85.

Finally, we need to calculate the federal tax on Anne's grossed-up dividend. The federal dividend tax credit of 15.02% is applied to the grossed-up dividend amount, resulting in a tax credit of $759 * 0.1502 = $113.97. Therefore, Anne's net federal tax on her dividend income is $6,863.85 - $113.97 = $6,749.88.