On January 1, 2020 Bernard borrowed $5,000 by signing a 1-year note payable at 6% interest and used the money to purchase 2,000 common shares of Import Ltd., a Canadian public corporation for $2.50 per share. During 2020 Import Ltd. paid eligible dividends of $0.35 per share. On January 1, 2021 Bernard repaid the $5,000 he borrowed plus $300 in interest. On his 2020 tax return, Bernard will report:

Question

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Bernard will report Net Property Income of $666. This is calculated by taking the total dividends received ($0.35 per share * 2,000 shares = $700) and subtracting the interest paid on the loan ($300), resulting in a net property income of $400. However, since the dividends are eligible dividends from a Canadian corporation, they are grossed up by 38% for tax purposes. The gross-up on $700 is $266 ($700 * 38%), making the total amount to report $666 ($400 + $266).

On January 1, 2020 Bernard Borrowed $5,000 by Signing a 1-Year