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Refundable Part IV tax applies to certain dividends received by private corporations in Canada. It is intended to prevent some corporate tax deferral opportunities as well as addressing double taxation problems that might occur when dividends are paid from corporation to corporation.
Part IV of the Income Tax Act is one such special tax that is meant to limit access to a corporation’s lower tax rate on income. This Part deals with “Tax on Taxable Dividends Received by Private Corporations”.
Taxable dividends received are only subject to Part IV tax if the corporation receives them while it is a private or subject corporation. Taxable dividends received from a non-connected corporation are subject to Part IV tax at a rate of 38 1/3%.
Apr 24, 2006 · Part IV.1 levies a tax on certain dividends received on “taxable preferred shares” (defined in subsection 248 (1)). Generally, a taxable preferred share will include most preferred shares issued after June 18, 1987.
Apr 27, 2023 · What is Part IV Tax? Part IV Tax is a tax that applies to Canadian corporations that receive dividends from other Canadian corporations. The tax rate is currently 38.33% and is designed to prevent corporations from using dividends to reduce their tax liability.
Part IV Tax is a pivotal concept in dividend income and corporate taxes. At its core, it represents an additional tax that a corporation may be required to pay on specific dividends received from other Canadian corporations. The primary objective is to thwart dividend streaming.
Jun 9, 2022 · Painful Part IV.1 tax or Part VI.1 tax can arise in such varied circumstances as (i) normal annual dividends paid to a retiree following an estate freeze, (ii) a safe income strip prior to a share sale, or (iii) a post-mortem redemption designed to avoid double taxation.
For information on Part IV tax and instructions to complete Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculations, see line 712 – Part IV tax payable.
The Part IV tax takes away the potential tax deferral advantage. The Part IV tax for the recipient corporation is 38 1/3% of the dividends received from the payer corporation (for taxation years ending before 2016, the rate was 33 1/3%).
Jul 12, 2021 · Tax on Aggregate Investment Income applies to passive income earned by a corporation, while Part IV tax generally applies to taxable dividends received by a private corporation from another corporation.
