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Part IV Tax:
Refundable Tax on Dividend Received


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When it comes to taxes, there is often a sea of confusion surrounding various terms and regulations, Part IV Tax is one such concepts.

What is Part IV Tax?

Part IV Tax is a term that often comes up in discussions about dividend income and corporate taxes. In simple terms, it refers to additional tax a corporation might have to pay on certain dividends it receives from other Canadian corporations. 

Part IV tax is designed to prevent dividend streaming, where dividends are shifted between related companies in an attempt to lower their overall tax liability.


How Part IV Tax Works

When a corporation receives dividends from another Canadian corporation, those dividends are usually subject to a lower tax rate. 

However if receiving corporation already has a significant amount of investment income and does not meet certain criteria, it might be subject to addtional tax, which is Part IV Tax. This ensures that corporations can’t simply accumulate investment income within a business to take advantage of the lower tax rate on dividends.


Implications of Part IV Tax for Individuals

If a taxpayer is shareholder in a corporation, Part IV Tax rules won’t directly impact them. Instead, they apply to corporation itself. 

However, indirectly, these rules can influence the corporation’s financial decisions, which could eventually affect dividends or other aspects that might concern shareholders.


How Part IV Tax Can be Avoid

For corporations looking to manage their tax liability effectively, it is important to understand the rules surrounding Part IV Tax. 

To avoid this additional tax, corporations should carefully plan their investment strategies and ensure they meet necessary criteria to qualify for the lower dividend tax rate.

– If you want to ensure that your company effectively manages refundable tax on dividend received while maximizing financial benefits, consider hiring a corporate tax accountant. Their expertise can make a significant difference in your tax planning and compliance efforts.