Question

In most cases, what would be the tax treatment of dividends received by a Canadian corporation from another Canadian corporation?

Multiple Choice

A. Added to net income.

B. Added to net income and then subtracted when calculating taxable income.

C. Added to net income and then subtracted when calculating taxable income, so long as the receiving corporation has at least a 10% voting equity investment in the corporation paying the dividend.

D. Grossed-up by 16% or 38%, depending on the tax rate paid by the paying corporation, and added to net income.

Answer 1

A taxable Canadian corporation can pay dividends to another taxable Canadian corporation and such dividends do not attract corporate tax, as long as the recipient corporation is connected to the payor corporation. To be connected, the recipient corporation must own shares of the payor entitling it to more than 10% of the underlying votes and value.

The answer is-

C. Added to net income and then subtracted when calculating taxable income, so long as the receiving corporation has at least a 10% voting equity investment in the corporation paying the dividend.