Budget 2012: Flexibility For Eligible Dividend Designations Introduced

Canada's personal tax regime subjects a dividend received from a Canadian-resident corporation to tax at one of two effective tax rates depending on the tax treatment of the income of the corporation that paid the dividend. For a shareholder to claim the lower effective tax rate on dividends, the corporation paying the dividend must generally calculate and confirm that it has sufficient income eligible to support the reduced rate and designate the dividend as such. In Budget 2012, the Government announced a plan to simplify the designation process and facilitate late-filed designations. These changes should promote a more efficient tax system and ease the tax compliance obligations borne by Canadian-resident corporations.