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P.E.I. Decreases 2014 Non-Eligible Dividend Tax Rate 

Canadian Tax Adviser

 

November 19, 2013

 

Prince Edward Island's Bill 7, which will decrease the tax rate on non-eligible dividends by increasing the province's dividend tax credit applicable to non-eligible dividends effective January 1, 2014, received first reading in the P.E.I. legislature on November 13, 2013. Bill 7 also provides for the gradual phase-out of the additional deduction for credit unions, mirroring the federal changes announced in the 2013 federal budget.

Since the bill has received first reading and P.E.I. has a majority government, the corporate measures included in the bill are considered substantively enacted for purposes of IFRS and ASPE as of November 13, 2013.

 

Non-eligible dividends
Bill 7 increases the dividend tax credit on non-eligible dividends to 21% (from 14.5%) of the federal gross-up for non-eligible dividends, effective January 1, 2014. P.E.I. previously announced that it would adjust the dividend tax credit on non-eligible dividends in its 2013 budget, however it did not provide any details at that time.

 

P.E.I. recently increased the dividend tax credit on non-eligible dividends to 14.5% (from 5%) in Bill 47, effective January 1, 2013.

 

The change in Bill 7 appears to be in response to the federal changes to the taxation of non-eligible dividends announced in the 2013 federal budget, effective 2014. As a result, the top federal-provincial marginal tax rate on non-eligible dividends paid in 2014 increases slightly to 38.74% (from 38.56% in 2013). However, before the amendment, the top federal-provincial marginal tax rate on non-eligible dividends paid in 2014 would have been 40.03%, as a result of the federal changes.

 

Prince Edward Island's combined top marginal tax rates on non-eligible dividends before and after Bill 7 are as follows:

 

 

Phase-out of credit union deduction
Bill 7 includes amendments to gradually phase-out the additional deduction for credit unions. The amendments mirror the plans announced in the 2013 federal budget to eliminate the federal additional deduction for credit unions.

 

For more information, contact your KPMG adviser.

 

 

 

 

 

Information is current to November 19, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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