Question

Mini-Case E: (1.5 marks-.5 marks each) Wang has an effective tax rate of 25%. He receives $250 in eligible dividends and $200 in non-eligible dividends during the 2019 tax year. To calculate the federal dividend tax credit, he has to gross-up the total dividends he receives. The gross-up percentages are 38% for eligible dividends and 15% for non- eligible dividends. a) Calculate Wang's Federal total income for dividends. (.5 mark) Calculate: (.5 mark) Page 7 of 10

Answer 1

a) Calculation of Wang's Federal Total Income for Dividends.

= ($250 x 1.38) + ($200 x 1.15)

= $345 + $230

= $575

This means that Wang's reports $575 as taxable income.

b) Since Wang's effective tax rate is 25%, her tax on this income will be:

= $575 x 0.25

= $143.75

c) The federal dividend tax credit as a percentage of taxable dividends is 15.0198% for eligible dividends and 9.0301% for non-eligible dividends. Wang's dividend tax credit on the federal level will be:

= ($345 x 0.150198) + ($230 x 0.090301)

= $51.82 + $20.77

= $72.59

d) The tax credit, thus, reduces Wang's original tax liability to $143.75 – $72.59 = $71.16. So Tax Payable is $71.16.