Many corporations and their owners may be contemplating whether a dividend should be paid in 2013 vs. 2014 from retained earnings.
| Ineligible Dividends | Eligible Dividends | |||||
|---|---|---|---|---|---|---|
| Top Rate for 2013 % | Top Rate for 2014 % | Saving from 2013 Dividend % | Top Rate for 2013 % | Top Rate for 2014 % | Saving from 2013 Dividend % | |
| BC | 33.71 | 37.98 | 4.27 | 25.78 | 28.67 | 2.89 |
| Alta. | 27.71 | 29.35* | 1.64 | 19.29 | 19.29 | - |
| Sask. | 33.33 | 34.97* | 1.64 | 24.81 | 24.81 | - |
| Man. | 39.15 | 40.77 | 1.62 | 32.26 | 32.26 | - |
| Ont. > $509K | 36.47 | 40.13 | 3.66 | 33.85 | 33.82 | (0.03) |
| Ont. - $135K-$509K | 32.57 | 36.45 | 3.88 | 29.54 | 29.52 | (0.02) |
| Qué. | 38.54 | 39.79 | 1.25 | 35.22 | 35.22 | - |
| NB | 33.05 | 36.02 | 2.97 | 24.91 | 27.35 | 2.44 |
| NS | 36.21 | 37.85* | 1.64 | 36.06 | 36.06 | - |
| PEI | 38.56 | 38.74** | 0.18 | 28.70 | 28.70 | - |
| NL | 29.96 | 31.60* | 1.64 | 22.47 | 22.47 | - |
| YT | 30.40 | 32.04 | 1.64 | 19.29 | 19.29 | - |
| NWT | 29.65 | 31.28* | 1.63 | 22.81 | 22.81 | - |
| Nunavut | 28.96 | 30.60* | 1.64 | 27.56 | 27.56 | - |
Note that the tax rate for ineligible dividends will increase in all provinces and territories in 2014 due to changes announced in the 2013 federal budget that will be effective for ineligible dividends received after 2013. The gross-up amount for ineligible dividends will decrease from 25% to 18% as a percentage of dividends received and the dividend tax credit will be adjusted from 2/3 to 13/18 of the gross-up amount. As a result of these changes, the federal tax rate on ineligible dividend income for a top rate individual will increase from 19.6% to 21.2%.
The difference is the most pronounced in British Columbia on ineligible dividends as both a provincial and federal tax increase will apply at the same time. Where a corporation in British Columbia will pay a dividend in 2014, consideration should be given to advancing that dividend to 2013. Similarly, there will be a provincial tax increase in New Brunswick. The difference is higher in Ontario as well with the announcement made as part of the fall economic statement last week. You should compare the cost of the dividend this year and next year and the cost of having to pay tax a year early. Your BDO advisor can help you decide whether adjusting the timing of dividends makes sense for you.
*Province has not made a specific announcement about dividend tax credit rates for 2014 and it is assumed that these provinces and territories will maintain the current level of taxation on ineligible dividends. For those provinces that have not made a specific announcement as yet, the rates used in our calculations could vary.
**Updated subsequent to the date of original posting to reflect the change to the 2014 provincial ineligible dividend tax credit announced in PEI Bill No. 7 on November 13, 2013.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of Nov 15, 2013.