Province Announces Revised Dividend Tax Credit Rate

The province has announced the revised rate on the provincial dividend tax credit, to coincide with federal changes to taxes on dividends for 2006.

Nova Scotia's dividend tax credit rate for public companies for the 2006 taxation year will increase to 8.85 per cent from 7.7 per cent.

The revised rate means that Nova Scotians will pay about the same level of provincial tax on dividends from public companies as they did before the federal changes. This policy was part of the 2006 provincial budget.

Nova Scotia's Income Tax Act will be amended in the spring of 2007 to make the change.

In November 2005, the government of Canada announced changes to dividend taxes to balance the tax treatment of income trusts and corporations and to make investments in public companies more attractive. Tax credit rates for Canadian Controlled Private Corporations were not affected.

The federal government increased the "gross up" on dividend income to 45 per cent from 25 per cent and the tax credit rate increased to 19 per cent from 13.33 per cent.

The dividend tax credit is calculated on a "grossed up" amount of dividends received by a shareholder, higher than the actual dividends received. The federal gross up and credit are designed to offset double taxation. Corporate profits are taxed in the hands of the company, then again in the hands of shareholders who received dividends.

The new federal and provincial rates are effective for the 2006 taxation year.

The revised tax credit rate in Nova Scotia will mean that 2006 provincial revenues from dividend taxes will remain about the same.