Line 712 - Part IV tax payable

Line 712 - Part IV tax payable

Use Parts 1 and 2 of Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation, to calculate Part IV tax payable on taxable dividends you received.

Dividends subject to Part IV tax

The following types of dividends are subject to Part IV tax:

• taxable dividends from corporations that are deductible under section 112 when you calculate taxable income

• taxable dividends from foreign affiliates that are deductible under paragraphs 113(1)(a), (a.1) (b), or (d), or subsection 113(2) when you calculate taxable income

  Note
  For details about dividends received after 2023 by financial institutions on shares that are mark-to-market property, see Line 320 on page 72.

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%.

Taxable dividends received from a connected corporation are subject to Part IV tax only when paying the dividends generates a dividend refund for the payer corporation.

Definitions

Private corporation

A private corporation is a corporation that is:

• resident in Canada

• not a public corporation

• not controlled by one or more public corporations (other than a prescribed venture capital corporation)

• not controlled by one or more prescribed federal Crown corporations

• not controlled by any combination of prescribed federal Crown corporations and public corporations

Reference
Subsection 89(1)

Subject corporation

A subject corporation is a corporation, other than a private corporation, that is resident in Canada and is controlled by or for the benefit of either an individual other than a trust, or a related group of individuals other than trusts.

Reference
Subsection 186(3)

Connected corporation

A payer corporation is connected to the corporation that receives the dividends (the recipient) if the recipient controls the payer corporation. The payer and recipient corporations are also connected when both of the following apply:

• the recipient owns more than 10% of the issued share capital (with full voting rights) of the payer corporation

• the recipient owns shares of the capital stock of the payer corporation with a fair market value of more than 10% of the fair market value of all the issued share capital of the payer corporation

You determine control of the corporation by considering the actual ownership of shares, without taking into account any rights referred to in paragraph 251(5)(b).

For purposes of Part IV tax, a payer corporation is controlled by a recipient corporation if more than 50% of the payer's issued share capital (having full voting rights) belongs to the recipient, to persons with whom the recipient does not deal at arm's length, or to any combination of these persons.

References
Subsections 186(2) and (4)

Exempt corporations

The following types of corporations are exempt from Part IV tax:

1. a corporation that was bankrupt at any time during the year

2. a corporation that, throughout the year, was one of the following:

   • a prescribed labour-sponsored venture capital corporation

   • a prescribed investment contract corporation

   • an insurance corporation

   • a corporation licensed as a trustee

   • a bank

   • a registered securities dealer that was, throughout the year, a member of a designated stock exchange in Canada

Reference
Section 186.1

Exempt dividends

A corporation that is a prescribed venture capital corporation throughout the year does not have to pay Part IV tax on dividends it received from a prescribed qualifying corporation.

References
Section 186.2
Regulation 6704

Dividends not taxable

Any dividends that a corporation received from a capital dividend account are not taxable, as long as the payer corporation made an election under section 83. Therefore, if these non-taxable dividends are included as income, they should be deducted as an adjustment on Schedule 1.

Parts 1 and 2 of Schedule 3

In the following section you will find details on Parts 1 and 2 of Schedule 3. Parts 3 and 4 are explained on page 82.

Part 1 - Dividends received in the tax year

Complete Part 1 to identify dividends, both taxable and non-taxable, received during the tax year and to calculate Part IV tax before deductions. Public corporations (other than subject corporations) do not need to calculate Part IV tax.

On line 320 of the return, enter the amount of taxable dividends deductible from taxable income under section 112, subsections 113(2) and 138(6), and paragraphs 113(1)(a), (a.1), (b), or (d).

Part 2 - Calculation of Part IV tax payable

Part IV tax otherwise payable on a dividend is reduced by any amount of Part IV.1 tax payable on the same dividend. See below for details.

You can reduce the amount of dividends subject to Part IV tax by using non-capital losses and farm losses incurred in the tax year or carried forward from previous years.

Part 2 also allows the calculation of Part IV tax payable for taxable dividends received from connected corporations and eligible dividends received from non-connected corporations.

On line 712 of the return, enter the amount of Part IV tax payable on taxable dividends received.

References
IT-269, Part IV Tax on Taxable Dividends Received by a Private Corporation or a
Subject Corporation
Subsection 129(4)

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