No Love for Dividends from the Government…

Just when you thought dividends would be your way out of taxes in your little personal corporation:

“Last year, the Federal Liberal government announced plans to amend the income tax rules for individuals who receive dividends from Canadian corporations. Under current rules, when an individual receives a dividend, that dividend is grossed-up by 25% to reflect the pre-tax corporate profit, and a credit is allowed to the individual to reflect taxes paid by the corporation. Despite this gross-up and credit system, the Federal tax system and the tax systems in most provinces were not “integrated” with respect to business income not eligible for the corporate small business deduction as less overall tax would be paid where an individual earns income directly when compared with the combined corporate and personal tax payable where the same income is earned by a corporation and the net income after tax is paid as a dividend to the individual. Under the Federal proposal, the gross-up factor will be increased to 45%, and there will also be an increase to the Federal dividend tax credit. These changes will ensure that a similar amount of overall tax is paid on income earned directly and income passing through a corporation.”

Guess I’ll be paying myself a salary this year afterall…or a shareholders loan…or something. Damn taxes!