Canada: Income tax rate increase; considerations for year-end dividend planning

Canada individual income tax rate increase in 2016

Taxpayers need to consider reviewing their year-end dividend planning now, and weighing the full impact of the recently announced increase to the highest federal individual (personal) income tax rate to 33% (from 29%) effective 1 January 2016. As a result of this income tax rate increase, the government made consequential changes relevant to the taxation of income flowed through Canadian-controlled private corporations. Taxpayers that revisit their year-end dividend planning may be able to address issues and opportunities that may have arisen following these changes.

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For example, paying a dividend in 2015 (versus in 2016) to shareholders can result in absolute personal tax savings in certain situations. The savings could range from 2.6% to 10.7% depending on the type of dividend (eligible or non-eligible) and the shareholder’s province of residence.

The decision as to whether it is better to pay a dividend in 2015 or 2016 to shareholders from a corporation that has both active business income and investment income, as well as refundable dividend tax on hand may vary by province. 


Read a December 2015 report [PDF 536 KB] prepared by the KPMG member firm in Canada: Revisit Your 2015 Year-End Dividend Planning Now — Before Integration Rate Changes Kick In           

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