# Ontario Changing Taxation of Eligible Dividends 2013



## CanadianCapitalist (Mar 31, 2009)

Will be of interest to many members:



> To improve fairness for investors, the government proposes to:
> 
> Calculate the Ontario surtax before deducting dividend tax credits from Ontario tax;
> Reset the tax credit rate for non-eligible dividends to the 2013 rate of 4.5 per cent; and
> Increase the tax credit rate for eligible dividends from 6.4 per cent to 10 per cent.


Basically, if I am reading this right, what this means is that if your net income is greater than $70K or so, the tax rate on your dividends is going up. If you earn less, the tax rate on dividends is going down.

Details here:
http://www.fin.gov.on.ca/en/budget/fallstatement/2013/chapter6.html


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## james4beach (Nov 15, 2012)

Interesting, thanks.

Also it serves as a reminder that the attractiveness of dividends entirely depends on tax policy (which can indeed change)


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## doctrine (Sep 30, 2011)

Yes; the government needs their taxes. But, at last check, Canadian dividends are still potentially zero taxed in Ontario up to a significant income level (a level which is now perhaps higher if this announcement goes through), and zero in a TFSA or RRSP.


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## andrewf (Mar 1, 2010)

^ The corp is paying the taxes for you.


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## GoldStone (Mar 6, 2011)

^ Canada is one of only few countries that don't double-tax dividends.


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## My Own Advisor (Sep 24, 2012)

Not great news...not unexpected I guess. Need to shift from non-registered to TFSA in 2014. That should help.


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## Cal (Jun 17, 2009)

I guess the gov't with all of their financial short falls needs their $ and has to get it from somewhere. 

Hard for me to decide if it is fair, as I don't love the current weighted tax system. I favour a flat tax. But that is another can of worms.

I guess this is that same, you make more, they take more. 

Kind of unfair when you consider that 2 people with different incomes, buy the same shares, in the same company, take arguably the same risk, yet one is taxed more. I say arguably, as the one that earns more is actually less reliant on gov't pensions and such in their retirement.

In a way perhaps it is a good problem to have. :rolleyes2:

CC-perhaps a future post...


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## andrewf (Mar 1, 2010)

It's not clear to me what the revenue impact of this change will be. It seems like it will be small.


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## warp (Sep 4, 2010)

CanCap,
Thanks for posting this.....I had not seen this news before.

Here is my first reaction to this news...It seems totally unfair that the govt would have the nerve to charge "surtaxes" on tax owing on the grossed-up phantom income on dividends before the dividend tax credit is applied.
Remember this is money, or "income" NEVER actually received.

Our tax system is ludicrous and idiotic, and it punishes hard work, risk taking, business buiding, savings, and investment.

I, and other posters, have said many times on this board that we need to get rid of all these complications, unfairness, and nensense, and just go to a flat-rate tax system. You could even have 3 tax brackets within such a system, if you wanted to...


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## warp (Sep 4, 2010)

By the way, I just read the rest of the link you posted about this.

I have heard about the Ony govt trying to get more from the education portion of your property tax. This document is the first step in increasing our already ridiculously high property taxes in Toronto, and surrounding areas.

I am sick of these constantly increasing taxes at every turn...which the govt will inevitably blow on some stupid program, wealth distribution scheme, or decision...think e-health, or gas plants. Idiots.


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## pwm (Jan 19, 2012)

Ontario is following the lead of Manitoba. For the 2012 tax year they decreased the Manitoba Dividend Tax Credit from 11% to 8%. I paid about $1,200 more Provincial tax in 2012 as a result. It was buried in the budget and got hardly any attention by the media, but it sure hurt me. This is typical of the way governments raise taxes by stealth.


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## HaroldCrump (Jun 10, 2009)

warp said:


> I, and other posters, have said many times on this board that we need to get rid of all these complications, unfairness, and nensense, and just go to a flat-rate tax system. You could even have 3 tax brackets within such a system, if you wanted to...


It is complicated by design.
It ensures that those without specialized legal, accounting and tax planning experts on their speed-dial end up paying more taxes.

It also keeps a large number of paper pushers employed in various departments, agencies, and municipalities .
Part of the taxes thus collected go towards employing them (and paying their generous benefits).

If we switched to a flat tax system, there will be hordes of govt. workers made redundant.
Our unemployment rate will go up a couple of % points.

This creates some fake employment and keeps people off the streets.


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## andrewf (Mar 1, 2010)

I think you're wildly overestimating how many government employees we have as a result of complex tax codes. The bigger cost savings would be on compliance (ie, time and expense in preparing tax filings).


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## My Own Advisor (Sep 24, 2012)

I think we can all agree, a simplified tax code and flat tax, there would be less bureaucracy and less head-count in the public sector.


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## andrewf (Mar 1, 2010)

Sure, but simpler is not always better. Having progressive tax rates is not the source of complexity, it is all the credits and deductions that are the problem.


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## My Own Advisor (Sep 24, 2012)

But if you simplify the tax code and what is taxed, you can also simplify the credits and incentives - no?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> it is all the credits and deductions that are the problem.


But it is precisely those targeted and razor focused credits and deductions that enable the govt. of the day to pick and choose winners and losers i.e. the rent payers and the rent seekers.

A simplified tax code - flat or progressive - does not offer the opportunity to pick and choose winners and losers.

For instance, the Harper administration has introduced dozens of specific, targeted tax credits in the last 4 - 5 years.
Home improvement tax credit, adult fitness tax credit, child fitness tax credit, cultural activity tax credit, blah blah blah.

Ontario has many such targeted tax credits as well (provincial gasoline tax, seniors energy credit, hiring immigrants tax credit, etc.).

This is how the govt. of the day picks which groups to support, and which groups to throw under the bus.


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## Jungle (Feb 17, 2010)

Tax tips has updated their tables. For our bracket in Ontario, it looks like elegible div tax is going from 13.43% to 8.46%.

But actually my wife's on mat so next year the div tax will be -1.20%


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## Eclectic12 (Oct 20, 2010)

Hmmm ... I haven't sorted out all the notes yet but it would appear that one an Ontario resident over $82K income, they are better to tax shelter eligible dividends versus capital gains. 

As an example, if they have a choice of transferring an eligible dividend paying stock versus a REIT that's mostly RoC - the REIT should be kept in the taxable account.

... or am I missing something?


Cheers


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## Synergy (Mar 18, 2013)

Eclectic12 said:


> Hmmm ... I haven't sorted out all the notes yet but it would appear that one an Ontario resident over $82K income, they are better to tax shelter eligible dividends versus capital gains.
> 
> As an example, if they have a choice of transferring an eligible dividend paying stock versus a REIT that's mostly RoC - the REIT should be kept in the taxable account.
> 
> ...


After a quick glance (taxtips.ca), it looks like capital gains would be favored over eligible diviends within a non-reg account for incomes over 87K (Ontario). Between $83-87K there doesn't appear to be any significant difference - .18% in favor of cap gains.

Post #17 - "Adult fitness tax credit", what will they think of next.


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