Mary Song, a Toronto investor, receives $10,000 in dividends from B.C. Forest Products shares, $10,000 in interest

Question:

Mary Song, a Toronto investor, receives $10,000 in dividends from B.C. Forest Products shares, $10,000 in interest from a deposit in a chartered bank, and a $10,000 capital gain from selling Central B.C. Mines shares. Use the information in Table 1A.2 to calculate the after-tax cash flow from each investment.

Interest Tax Treatment

Interest ………………………………………………………….. $1,000.00

Federal tax at 29% ……………………………………………… 290.00

Provincial tax at 13.16% ……………………………………… 131.60

Total tax ………………………………………………………… $ 421.60

Capital Gains Tax Treatment

Capital gains …………………………………………………… $1,000.00

Taxable capital gains (50% × $1,000) ………………… 500.00

Federal tax at 29% ……………………………………………. 145.00

Provincial tax at 13.16% …………………………………… 65.80

Total tax ……………………………………………………….. $ 210.80

Dividend Tax Treatment (Eligible Dividends)

Dividends ……………………………………………………... $1,000.00

Gross up at 38% ………………………………………………. 380.00

Grossed-up dividend …………………………………………. 1380.00

Federal tax at 29% ……………………………………………. 400.20

Less dividend tax credit (15.0198% × $1,380)* …… 207.27

Federal tax payable …………………………………………… $ 192.93

Provincial tax at 13.16% (13.16% × $1,380) ……… $ 181.61

Less dividend tax credit (6.4% × $1,380)* ……………… 88.32

Provincial tax payable ……………………………………….. $ 93.29

Total tax ……………………………………………………… $ 286.22

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...