So, what exactly is a gross-up?

National Post

2008-03-07



Gross-up? The term bandied about in the dividend tax changes in the new federal budget refers to the percentage by which the actual dividends a shareholder receives must be increased or "grossed-up" in order to restore the net amount received by the shareholder to its pre-corporate tax amount. For example, if a corporation pays tax at a combined federal and provincial rate of 31%, then $100 of corporate income would face taxes of $31, leaving $69 available to the corporation to pay out as a dividend. If a shareholder receives the $69 as a dividend, he or she would "gross up" that amount by 45%, such that the total income reported by the shareholder would now be $100 ($69 X 1.45), the same amount of income that was earned by the corporation. The individual would pay tax on the $100 at his or her marginal tax rate, but also be entitled to claim a dividend tax credit in respect of the taxes already paid by the corporation.