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GCSE, Green Chencinski Starkman Eles LLP Chartered Accountants, is a full-service, public accounting firm, primarily serving the small and mid-size, entrepreneurial business and professional sectors in Toronto Canada. GCSE’s experienced partners and professional, support staff strive to provide accounting and advisory services using an invaluable personal approach, designed to meet each client’s individual needs. This “personal touch”, combined with a full range of accounting, auditing, tax compliance and planning services allows GCSE to meet all your business and personal accounting requirements.

  Increase In Tax On Non-Eligible Dividends

The decrease in corporate tax rates has resulted in a low tax regime that is the envy of many countries, and especially of our neighbour to the south. The current corporate tax rates of a corporation carrying business in Ontario are 15.5% (small business corporation rate) and 26.5% otherwise.

The tax payable by a shareholder of a Canadian corporation is subject to gross-up and dividend tax credit mechanisms which are intended to integrate the corporate tax already paid with the personal tax on the dividend so that a person is theoretically indifferent as to whether the income is earned directly or through a corporation.

Integration is more or less achieved on income that does not benefit from the small business deduction. There is still a 2% overall tax cost that may be mitigated by the deferral of the personal portion of the tax if corporate surplus is not paid to the shareholder.

The personal tax rate on dividends ("Non-Eligible" dividends) paid from income which has been subject to the small business rate. The gross-up factor will decrease from 25% to 18%, and the dividend tax credit will be decreased from 2/3 of the gross-up to 13/18. Ontario has also announced that it will adopt these measures.

The net impact of this change, effective in 2014, is that maximum tax rate on non-eligible dividends will increase from 33% to 36% for individuals who are at the second highest marginal tax bracket, and from 36% to 40% for those who are at the highest marginal tax bracket.

It is important to consider the increase in tax rates in the timing of dividend declaration.
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