Canadian Western Bank T.CWB

Response: A Hidden Tax in Dividend Gross Up o

[gilbert3]

Letter to the editor Title: Gross-up is Grossly Unfair! I am a retired chartered accountant who has been a volunteer income tax preparer for low-income seniors for more than 10 years. Some of these people receive modest taxable Canadian dividends, and the unfairness caused by the method of calculating the dividend tax credit for them became obvious to me. If a taxpayer receives a cash dividend of $1,000, this amount is grossed up (now by 45%) and reported as a taxable amount of $1,450 and this amount is included in the Net Income total on the T-1 general return. The resulting taxable income is used to determine gross income tax payable, and the reported dividend is used to compute the dividend tax credit for all taxpayers – seniors or not. The problem is that net income is used in calculations which determine the value of benefits such as: Non-Refundable Age Credits; OAS Claw-Back; Transfers of Personal Non-Refundable Credits; GST Credits; and Ontario Property Tax Credits. Moreover, in some instances, gross-ups can push taxpayers into a higher marginal tax rate. Believe it or not, I have had a few cases of widows receiving the GIS who received very modest dividends from shares inherited from their spouses. The GST claw-back is normally a very harsh 50%, but after the gross-up of 45% it becomes an unbelievable $725 on an actual dividend of $1,000. And, bless their hearts, they don’t want to sell their shares because they want to leave something behind to pay for their funeral. Earl Christenson, Oshawa , Ontario END John Williamson Federal Director Canadian Taxpayers Federation Varette Building Suite 512, 130 Albert Street Ottawa , Canada K1P 5G4 Phone: [phone] Fax: [phone] email: [e-mail]