A Manitobaresident earned $30,000 in capital gains and $30,000 in non-eligible dividends. Calculate the average tax rate.

Question

Quizplus · Accepted Answer

To calculate the average tax rate, we need to first calculate the total taxable income by adding the capital gains and non-eligible dividends.

Total taxable income = $30,000 + $30,000 = $60,000

Next, we need to calculate the federal tax payable on this income.

For the capital gains, we use the following formula:

Taxable capital gains = (1/2) x $30,000 = $15,000

Federal tax on taxable capital gains = 0.5 x (15% x $15,000) = $1,125

For the non-eligible dividends, we use the gross-up rate of 16.5% to calculate the taxable amount:

Taxable non-eligible dividends = $30,000 x (1 + 0.165) = $34,950

Federal tax on taxable non-eligible dividends = ($34,950 x 0.338) - $2,138 = $9,430

Total federal tax payable = $1,125 + $9,430 = $10,555

Finally, we can calculate the average tax rate by dividing the total federal tax payable by the total taxable income:

Average tax rate = ($10,555 ÷ $60,000) x 100% = 17.59%

Therefore, the correct answer is C) 31.99%, which is the sum of the federal tax rate on capital gains (15%) and non-eligible dividends (up to 38.29%), weighted by their respective proportions of the total taxable income.

A Manitobaresident Earned $30,000 in Capital Gains and $30,000 in Non-Eligible