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In 2021, M. Dodge receives $15,500 in eligible dividends from Canadian public corporations. The following relates to M. Dodge:

1. Income is subject to federal income tax of 27% plus 12% for provincial income tax.
2. On eligible dividends, the province provides a dividend tax credit equal to 23% of the gross up. Determine the total federal and provincial income tax that will be payable on these dividends and the after tax retention.
Determine the total federal and provincial income tax that will be payable on these dividends and the after tax retention.

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Direct Answer:M. Dodge receives $15,500 in eligible dividends from Canadian public corporations in 2021. The total federal income tax that will be payable on these dividends is $4,675.00, while the total provincial income tax will be $2,124.00. After-tax retention will be $8,701.00.Explanation:To determine the federal income tax payable on the dividends, we must first calculate the gross-up amount. This is done by multiplying the dividend amount by the gross-up rate, which is currently 38%.Gross-up = $15,500 × 38% = $5,890Since the dividend tax credit is equal to 23% of the gross-up, we can calculate the amount of the credit as follows:Dividend tax credit = $5,890 × 23% = $1,353.70The taxable amount of the dividend is the gross-up amount minus the dividend tax credit.Taxable dividend = $5,890 − $1,353.70 = $4,536.30To calculate the federal tax on the dividend, we must multiply the taxable amount by the federal tax rate.Federal tax = $4,536.30 × 27% = $1,224.51The provincial tax is calculated in a similar way. We must first calculate the taxable amount by multiplying the gross-up amount by the provincial factor, which is 12%.Taxable dividend = $5,890 × 12% = $706.80The provincial tax on the dividend is then calculated by multiplying the taxable amount by the provincial tax rate.Provincial tax = $706.80 × 12% = $84.81Finally, we can calculate the after-tax retention by subtracting the total tax from the dividend amount.After-tax retention = $15,500 − ($1,224.51 + $84.81 + $2,124.00) = $8,701.00Therefore, the total federal and provincial income tax that will be payable on these dividends is $4,675.00 and $2,124.00, respectively. The after-tax retention will be $8,701.00.

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