Tax Rates Canada Federal CIT: 15%. Provincial and territorial CITs range from 8% to 16% and are not deductible for federal CIT purposes. https://taxsummaries.pwc.com/quick-charts/corporate-income-tax-cit-rates USA Federal CIT: 21%. State CITs range from 1% to 12% (although some states impose no CIT) and are deductible expenses for federal CIT purposes. https://taxsummaries.pwc.com/quick-charts/corporate-income-tax-cit-rates Dividend Canada https://taxsummaries.pwc.com/canada/corporate/income-determination Dividend income Dividends received by one Canadian corporation from another Canadian corporation generally can be deducted in full when determining taxable income. However, dividends received by a ‘specified financial institution’ on certain preferred shares are an important exception and are taxed at full corporate rates. Draft legislation introduces rules that will also prevent financial institutions from claiming this ‘dividends received’ deduction, for dividends received on shares that are mark-to-market properties (which are generally portfolio shareholdings), to be effective for dividends received after 2023; the 2023 federal Fall Economic Statement proposes an exception to this draft legislation for dividends received on 'taxable preferred shares.' Dividends on most preferred shares are subject to a 10% tax in the hands of a corporate recipient, unless the payer elects to pay a 40% tax (instead of a 25% tax) on the dividends paid. The payer can offset the tax against its income tax liability. The tax is not imposed on the first CAD 500,000 of taxable preferred-share dividends paid in a taxation year. Nor does it apply to dividends paid to a shareholder with a 'substantial interest' in the payer (i.e. at least 25% of the votes and value). Dividends received by private corporations (or public corporations controlled by one or more individuals) from Canadian corporations are subject to a special refundable tax of 38⅓%. The tax is not imposed if the recipient is connected to the payer (i.e. the recipient owns more than a 10% interest in the payer) unless the payer was entitled to a refund of tax in respect of the dividend. When the recipient pays dividends to its shareholders, the tax is refundable at a rate of 38⅓% of taxable dividends paid. Stock dividends If the payer is resident in Canada, stock dividends are treated for tax purposes in the same manner as cash dividends. The taxable amount of a stock dividend is the increase in the paid-up capital of the payer corporation because of the payment of the dividend. Stock dividends received from a non-resident are exempt from this treatment. Instead, the shares received have a cost base of zero. Cross-border securities lending arrangements (SLAs) In general terms, in a security lending and repurchase arrangement, a counterparty transfers or lends a Canadian share to a taxpayer and the taxpayer agrees to transfer or return an identical share to the counterparty in the future. Over the term of the arrangement, the taxpayer is obligated to pay to the counterparty amounts (dividend compensation payments) as compensation for all dividends received on the transferred or lent Canadian share. The WHT rules are modified for dividend compensation payments that a Canadian borrower makes to a non-resident lender under an SLA, to address planning undertaken by certain non-residents that attempts to avoid the Canadian dividend WHT, as follows: The rules apply to compensation payments made under both SLAs and 'specified SLAs' (equity-based financial arrangements, which are similar to SLAs). All dividend compensation payments made under SLAs and specified SLAs are treated as dividends for WHT purposes, regardless of whether the arrangement is fully collateralised. Certain rules apply for purposes of determining the WHT rate available under a tax treaty (the general effect of these rules is to make it more difficult for a lender to access the reduced WHT rates that are available under certain treaties where the dividend recipient owns at least 10% of the shares of the dividend payer [in terms of voting rights and fair market value]). A relieving measure for dividend compensation payments made in respect of non-Canadian shares ensures that such payments are exempt from WHT if the related SLA is fully collateralised. The scope of an existing exemption for interest compensation payments is also expanded. USA https://taxsummaries.pwc.com/united-states/corporate/income-determination Dividend income A US corporation generally may deduct 50% of dividends received from other US corporations in determining taxable income. The dividends received deduction (DRD) is increased from 50% to 65% if the recipient of the dividend distribution owns at least 20% but less than 80% of the distributing corporation. Generally, dividend payments between US corporations that are members of the same affiliated group (see the Group taxation section) are deferred or eliminated until a transaction with a third party occurs. With minor exceptions, a US corporation may not deduct dividends it receives from a foreign corporation. A 100% DRD is provided for the foreign-source portion of dividends received by a US corporation from certain foreign corporations with respect to which it is a 10% US shareholder. Stock dividends A US corporation can distribute a tax-free dividend of common stock proportionately to all common stock shareholders. If the right to elect cash is given, all distributions to all shareholders are taxable as dividend income whether cash or stock is taken. There are exceptions to these rules, and extreme caution must be observed before making such distributions.
