What tax liability is created by a Canadian corporation in the 35% tax bracket that receives $50,000 in preferred stock dividends?
A)$0
B)$5,250
C)$12,250
D)$17,500

Question

Quizplus · Accepted Answer

In Canada, dividends received by a corporation from another Canadian corporation are generally eligible for a Dividend Received Deduction (DRD), which can significantly reduce or eliminate the tax liability on those dividends. This is designed to prevent double taxation of income. Since the corporation is in the 35% tax bracket and receives $50,000 in preferred stock dividends from another Canadian corporation, it can utilize the DRD to reduce its tax liability on these dividends to $0.

What Tax Liability Is Created by a Canadian Corporation in the 35