Rebecca, an investor in a 40% marginal tax bracket, receives $1,200 in Canadian dividends eligible for the dividend tax credit. What is the dividend tax credit that applies to this income?
Comprehensive and Detailed Explanation From Exact Extract:
The dividend tax credit for Canadian dividends is calculated based on the grossed-up dividend amount. For eligible dividends, the gross-up is 38%. The taxable amount for $1,200 in dividends is $1,200 × 1.38 = $1,656. The dividend tax credit is 15.02% of the grossed-up amount: $1,656 × 15.02% = $248.73. The feedback from the document confirms:
"The taxable amount of the dividend is the income received plus a 38% gross-up amount. In this example, $1,200 + ($1,200 × 38%) = $1,656. The dividend tax credit is 15.02% of the grossed-up amount, in this example, $1,656 × 15.02% = $248.73."
[Reference:Chapter 6 – Tax and Retirement PlanningLearning Domain:The Know Your Client Communication Process, ]
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