Bill C-2 Holding Up Dividend Refunds

The Liberal Government proposed a number of tax law changes during their 2015 election campaign, and we are starting to these come into reality. The official bill, title Bill C-2, is in parliament right now. One of the notable changes has to do with the federal income tax brackets, which are changing as follows:

2016 Taxable Income 2016 Marginal Tax Rates 2015 Taxable Income 2015 Marginal Tax Rates
Canadian Dividends Other
Canadian Dividends
Eligible Non-Eligible Eligible Non-Eligible
first $45,282 15.0% 7.50% -0.03% 5.24% first $44,701 15% 7.5% -0.03% 4.70%
over $45,282 up to $90,563 20.5% 10.25% 7.56% 11.67% over $44,701 up to $89,401 22% 11.0% 9.63% 12.96%
over $90,563 up to $140,388 26.0% 13.00% 15.15% 18.11% over $89,401 up to $138,586 26% 13.0% 15.15% 17.68%
over $140,388 up to $200,000 29.0% 14.50% 19.29% 21.62% over $138,586 29% 14.5% 19.29% 21.22%
over $200,000 33.0% 16.50% 24.81% 26.30%

The ripple effect from this is the rates for Refundable Dividend Tax On Hand (RDTOH) for Canadian corporations will be changing as well. Since Canadian tax law prioritizes ‘integration’ with regards to personal vs. corporate tax, any changes made to personal tax rates will effect corporate rates as well.

The result of all this is that the CRA is withholding all dividend refunds from Canadian corporations until the bill has been finalized. Since the old rates are technically still law, any corporate returns filed are being calculated by the CRA according to those rates. Once bill C-2 is passed however, the refunds will be readjusted and then issued as normal. Thankfully this is only related to corporate returns as the law starts January 1, 2016, so you don’t have to worry about any personal tax implications.

For more detailed information on the changes see the official summary from the Parliament of Canada website.


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