2017-0692261M4 Ontario surtax and taxable dividends

Principal Issues: Ontario surtax and the deduction of the dividend tax credit for taxable dividends.

Position: See below.

Reasons: See below.

Author: Shea-Farrow, Nancy
Section: 16(2) of the Ontario Taxation Act, 2007

XXXXXXXXXX

Dear XXXXXXXXXX:

The office of the Right Honourable Justin Trudeau, Prime Minister of Canada, sent me a copy of your correspondence about taxable dividends and the surtax on a provincial tax form. Thank you for your understanding regarding the delay of this response.

You note that income tax is applied to grossed-up taxable dividends rather than actual dividends received. You also note that a recent change was made to a provincial tax form showing provincial surtax calculated on tax before deducting the dividend tax credit. From your description of the changes to the form, it appears you are referring to the provincial Form ON428, Ontario Tax.

According to the federal Income Tax Act, the taxable dividend amount (the grossed‑up amount) of dividends received by a taxpayer from taxable Canadian corporations must be included in the calculation of the taxpayer’s income for tax purposes. For Ontario income tax purposes, Ontario’s Taxation Act, 2007 uses these same rules.

Generally, an individual who has taxable dividends also receives a dividend tax credit.  The federal dividend tax credit is claimed on line 425 of Schedule 1, Federal Tax, of the individual’s income tax and benefit return. The Ontario dividend tax credit is claimed on line 57 of Form ON428.

For tax years before 2014, the Ontario dividend tax credit was deducted before the surtax was calculated, which meant that higher income taxpayers received a greater benefit from the credit than lower income individuals who did not pay the surtax. Therefore, the Ontario government announced in the 2014 Ontario Budget that it would introduce legislation to change the calculation of the Ontario surtax for the Ontario dividend tax credit so it would have the same value for all taxpayers, regardless of their incomes. The amendments to the Taxation Act, 2007 resulted in the Ontario dividend tax credit being deducted after the surtax was calculated for tax years ending after 2013. As a result of these amendments, Form ON428 was changed.

The Canada Revenue Agency is responsible for the administration of the tax system, but not for developing Ontario tax policy. The concern you raise relates to Ontario tax policy, which is the responsibility of the Ontario Minister of Finance. If you still have concerns about this policy, you can to write to the Honourable Charles Sousa, Ontario Minister of Finance, 7th Floor, Frost Building South, 7 Queen’s Park Crescent, Toronto ON  M7A 1Y7.

I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.

Sincerely,

The Honourable Diane Lebouthillier
Minister of National Revenue

Nancy Shea-Farrow
905-721-5099
2017-069226

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