Moore
November 2021 Newsletter

Normally, you include in your income, for tax purposes, any dividends that you receive in the year. You cannot generally shift your dividends into your spouse’s income, or vice versa.

However, an election under the Income Tax Act allows this in certain cases.

Generally, this may be allowed where your spouse (or common-law partner) receives a dividend but is in a low tax bracket.

More specifically, if your spouse receives a dividend in a taxation year, you can elect in your tax return for the year to have it included in your income rather than your spouse’s income. You can make the election only if it would increase your spousal tax credit, which is available if your spouse has relatively little or no income. That is, if the shift of the dividend into your income brings your spouse’s income low enough for you to claim or increase your spousal tax credit, you can make the election. For federal tax purposes for 2021, your spousal credit will be phased out as your spouse has income up to $13,808 and eliminated at or above that amount, or $16,103 if they are infirm (lower thresholds apply if you are in one of the two highest tax brackets). If your spouse has no income, you get the full spousal credit.

The dividend tax credit for dividends received is not refundable, which means it can bring an individual’s tax down to zero, but the individual does not get a refund if the credit is greater than the tax otherwise payable. So, if your spouse or partner has little or no income, they might not to be able to use the dividend tax credit, in which case it may make sense for you to make the election and claim the dividend and the dividend credit, subject to the comments below.

In terms of whether you should make the election, you would also have to weigh the increase in the spousal tax credit for you versus the increased tax that you would pay by including the dividend in your income after accounting for the dividend tax credit. If the increased spousal credit is more than the tax on the dividend, you would likely make the election. If it were the other way around, you would likely not make the election.

Last modified on November 12, 2021 12:00 am