Dividend Tax Credit - Nova Scotia
Background information
December 1, 2006
Nova Scotia’s dividend tax credit rate for public companies increases from 7.7 per cent
to 8.85 per cent, effective January 1, 2006. This follows federal changes to the
dividend gross up and credit rate, announced in November, 2005.
Under the new provincial tax credit rate, Nova Scotians will pay about the same amount
of provincial tax on dividends received from public corporations as they did before the
federal changes. Provincial revenues from dividend taxes will also remain neutral.
Nova Scotia will amend its Income Tax Act in the Spring of 2007 to implement the
change. Policy decisions on the provincial dividend tax credit were part of the July
2006 Nova Scotia budget.
All Canadians will see lower federal taxes on dividends received from public
corporations, as of January, 2006.
Dividend tax rates in Nova Scotia for 2006 - federal and provincial
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Dividends from public corporations
the federal gross up of dividends increases to 1.45 from the current 1.25. This
means $100 in cash dividends is reported as $145 of income for tax purposes
the federal dividend tax credit rate increases from 13.33% to 19%,
Nova Scotia’s dividend tax credit rate increases from 7.7% to 8.85%
Dividends from Canadian Controlled Private Corporations
federal gross up remains at 1.25
the dividend tax credit rate remains unchanged at 13.33%
Dividends from Canadian Controlled Private Corporations paid from the
general rate income pool
the federal gross up of dividends increases to 1.45 from the current 1.25. This
means $100 in cash dividends is reported as $145 of income for tax purposes
the federal dividend tax credit rate increases from 13.33% to 19%
Nova Scotia’s dividend tax credit rate increases from 7.7% to 8.85%.
About the federal changes and taxation of dividends
The revised federal dividend tax credit rate was designed to equalize the tax treatment
of income trusts and corporations by 2010.
Corporations pay corporate income taxes and individuals receiving dividends from
those corporations pay personal income taxes. This, in effect, creates double taxation
on the income of the corporation. To compensate for this, there is a dividend tax credit
on both federal and provincial personal income taxes to reduce the dividend’s marginal
rate of tax.
The dividend tax credit is calculated on a “grossed up” amount of dividends, now 1.45
times the actual dividend received by shareholders. The grossed up amount is included
in taxable income, and federal and provincial tax credits are based on that amount.
The provincial dividend tax credit rates are determined by the provinces. Provinces are
tied to the gross up amount as set by the federal government, which is included in the
determination of taxable income.
The federal government announced more changes to treatment of income trusts in late
October, 2006. They plan to tax existing trusts to the same extent as corporations by
2011 and tax new trusts at equivalent rates immediately.
Effect on individuals Nova Scotians who pay tax on dividend income:
Individual Nova Scotians will pay lower combined federal and provincial taxes on
dividend income for the 2006 taxation year.
The amount of the benefit will depend on the individual’s income tax bracket. Lower
income earners will get a larger benefit.
Taxable
Income
Tax change /$100 of cash
dividends
Provincal Federal
Total
$20,000.00
-1.45
-7.84
-9.29
30,000.00
-0.22
-7.84
-8.06
40,000.00
-0.22
-6.49
-6.71
50,000.00
-0.22
-6.49
-6.71
60,000.00
0.13
-6.49
-6.36
70,000.00
0.13
-6.49
-6.36
80,000.00
0.13
-5.69
-5.56
90,000.00
0.13
-5.69
-5.56
100,000.00
0.29
-5.69
-5.40
110,000.00
0.29
-5.69
-5.40
120,000.00
0.29
-5.09
-4.80
Effect on Province of Nova Scotia finances
In 2004, over 83,000 tax filers reported dividend income in Nova Scotia of over $600
million on a grossed up basis.
The revised dividend tax credit rate of 8.85% will mean that Nova Scotia’s revenue from
dividend taxes will remain about the same in 2006.
30 November 2006