Since the introduction of the eligible dividend rules in 2006, taxpayers have been challenged by the administrative burden that accompanies eligible dividend designations. In its 2012 Budget, the Federal Government has introduced new rules which address some of these challenges. In general terms, the eligible dividend rules were introduced to improve the integration of tax between the corporate and shareholder levels for high corporate rate income through an enhanced dividend tax credit with respect to eligible dividends.
Under existing law, a corporation paying an eligible dividend must designate an entire dividend as such by notifying each shareholder in writing, at the time the eligible dividend is paid, that the dividend has been designated as an eligible dividend. On this basis it is currently not possible to designate only part of a dividend as an eligible dividend. Furthermore, under the current rules, it is not possible for a corporation to make a late designation of an eligible dividend.
The 2012 Federal Budget proposes two relieving provisions, effective for dividends paid after March 28, 2012:
The application process for obtaining the Minister’s consent for late designations is as yet unclear. However, these new rules should generally provide greater flexibility and improve tax fairness with respect to the designation of dividends as eligible dividends.
If you require further information regarding these proposed rules, please contact a member of the Tax Specialist Group.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.