Principal Issues: Dividend gross up included in income for purposes of calculating income used in the OAS Clawback calculation.
Position: See below.
Reasons: See below.
November 30, 2016
XXXXXXXXXX
Dear XXXXXXXXXX:
The office of the Honourable Bill Morneau, Minister of Finance, sent me a copy of your correspondence about taxable dividends. Thank you for your understanding regarding the delay of this response.
You note that the Canada Revenue Agency (CRA) included the dividends you received at a grossed-up amount when calculating net income rather than only including the actual amount of dividends you received. You feel this is unfair because net income is used to calculate the reduction to your old age security (OAS) pension.
The Income Tax Act requires that OAS benefits be reduced when an individual’s adjusted income is higher than an indexed threshold, which was $72,809 for the 2015 tax year. Adjusted income is determined by the Act and, in general, is the taxpayer’s net income before deductions (line 234, “Net income before adjustments,” of the taxpayer’s personal income tax and benefit return). According to the Act, the calculation requires that adjusted income include the taxable dividend amount of the dividends a taxpayer received from taxable Canadian corporations. The taxable dividend amount is, as you mentioned, the grossed-up amount of the dividends received and not the amount of the dividends the taxpayer actually received. There is no discretion in the Act to calculate adjusted income without the grossed-up amount of dividends received.
Generally, an individual who has taxable dividends also receives a dividend tax credit. The dividend tax credit is designed to reduce the amount of personal tax that an individual pays and is intended to take into account the tax already paid by the corporation. The dividend tax credit is claimed on line 425, “Federal dividend tax credit,” of Schedule 1, Federal Tax, of the individual’s income tax and benefit return.
The CRA is responsible for administering the tax system and applying the tax legislation as enacted by Parliament. The Department of Finance Canada is responsible for developing and evaluating tax policy and changing the Act. Because you initially wrote to Mr. Morneau, his department is now aware of your concerns.
I appreciate the opportunity to respond to your email and trust the information I have provided is helpful.
Sincerely,
The Honourable Diane Lebouthillier, P.C., M.P.
Minister of National Revenue
c.c.: The Honourable Bill Morneau, P.C., M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6
Eric Wirag
613-670-9053
2016-066730