Personal Tax -> Dividend tax credits -> Reduction of benefits

 Government benefits could be reduced by change in dividend gross-up after 2005

The 2006 increase of the gross-up, from 25% to 45%, on dividends eligible for the enhanced dividend tax credit will result in increased net income for tax purposes.  The net income amount is often used in calculating eligibility for income-tested benefits.  For taxpayers who are in lower tax brackets, but have these dividends as a portion of their income, these benefits may be reduced.  For every $1,000 of actual dividends received, the net income for tax purposes is $1,450.  Canada and each province/territory have different net income thresholds for different social programs.  If you are in a low tax bracket and receive income from dividends, you should review your finances to avoid jeopardizing government benefits.

Starting in 2010, the gross-up will be reduced each year until it is reduced to 38% in 2012.  See the enhanced dividend tax credit article for details.

Tax tip:  Financial planning may avoid the loss of government benefits.

Revised: April 23, 2010