How to Calculate Ontario Dividend Tax Credit

What is Ontario Dividend Tax Credit?

The Ontario Dividend Tax Credit is a provincial tax credit designed to encourage investment in Ontario businesses. It provides a refundable credit against the provincial portion of the corporate income tax paid on eligible dividends received by Ontario residents.

The credit is calculated as a percentage of the eligible dividends received. The rate varies depending on the type of corporation and the year of assessment.

How to Calculate Ontario Dividend Tax Credit

Calculating the Ontario Dividend Tax Credit involves several steps, including determining your eligible dividends, applying the appropriate credit rate, and calculating the total credit amount.

The basic formula for calculating the Ontario Dividend Tax Credit is:

Where:

• Eligible Dividends - The total dividends received from Ontario corporations that meet the eligibility criteria
• Credit Rate - The applicable percentage rate for the type of corporation and year of assessment

Eligibility Requirements

To qualify for the Ontario Dividend Tax Credit, you must meet certain requirements:

1. You must be a resident of Ontario for the entire year of assessment.
2. The dividends must be received from an Ontario corporation.
3. The corporation must be engaged in a qualifying business activity.
4. The dividends must be paid from taxable corporate income.

There are also limits on the amount of dividends that can qualify for the credit each year.

Step-by-Step Calculation

1. Determine your eligible dividends - Calculate the total dividends received from Ontario corporations that meet the eligibility criteria.
2. Identify the credit rate - Look up the applicable credit rate based on the type of corporation and the year of assessment.
3. Calculate the credit amount - Multiply the eligible dividends by the credit rate to determine the total Ontario Dividend Tax Credit.
4. Apply the credit - The credit can be claimed on your Ontario personal income tax return.

Example Calculation

Let's walk through an example to illustrate how to calculate the Ontario Dividend Tax Credit.

1. Identify eligible dividends - $10,000
2. Determine credit rate - 15%
3. Calculate credit amount - $10,000 × 15% = $1,500

In this example, the Ontario Dividend Tax Credit would be $1,500.

How to Claim

To claim the Ontario Dividend Tax Credit, you will need to complete Form T2201, Statement of Ontario Dividend Tax Credit, and include it with your Ontario personal income tax return.

The credit will be applied against the provincial portion of your corporate income tax, potentially reducing your tax liability or providing a refund if you have no provincial tax owing.