Question

The Dawg corporation owns 12% of Company A and 31% of Company B. Dividends received from Company A were $117,000 and from Company B were $212,000. If Dawg's "adjusted" taxable income is $2,000,000, calculate Dawg's taxable income after including the dividend information. & Answer is complete but not entirely correct. А в Taxable Income $ 2,056,300 X 3 7. 8 10

Answer 1

Dividends received deduction is tax break applied to corporations who receives dividend from the companies in which it holds stake. The deduction eliminates triple taxation consequences on dividend receipt.

There are three tiers of possible deductions:

	Allowed deduction of dividend
If company holds less than 20% of another company	50%
If company holds more than 20% - 80%of another company	65%
If company holds more than 80%	100%

Dawg corporation holds 12% of company A. Hence, allowed deduction would be 50% of dividend i.e. 50% of 117,000 = $ 58,500

Dawg holds 31% of Company B which is more than 20% Hence, allowed dividend received deduction would be 65% of dividend = 65% of 212,000 = $ 137,800.

Computation of taxable income is as:

	Amount ($)	Amount ($)
Dawg’s taxable income before dividend		2,000,000
Add:
Dividend income from A	117,000
Dividend income from B	212,000	329,000
		2,329,000
Less: Dividend received deductions (DRD) as:
DRD from A	58,500
DRD from B	137,800	196,300
Dawg’s taxable income after including dividend		$ 2,132,700

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