You hold 1,000 units of Calgary Commercial Property,a real estate investment trust (REIT).500 of those units are held inside a tax-free savings account,the other 500 are outside the tax-free savings account.The REIT announces a profit of $10 per share,of which it retains $4 for reinvestment and distributes the rest as dividend payments.Given your personal tax rate of 30%,and the tax rate on dividends is 15%,what is your total after-tax income?

Question

Quizplus · Accepted Answer

The total dividend payment per share is $10 - $4 = $6. For the 500 units inside the tax-free savings account, you receive the full dividend without tax, so 500 * $6 = $3,000. For the 500 units outside the tax-free savings account, the dividend is taxed at 15%, so you receive 85% of $6, which is $5.10 per share. Therefore, for these 500 units, you receive 500 * $5.10 = $2,550. The total after-tax income is $3,000 (tax-free account) + $2,550 (taxed account) = $5,550. However, the correct calculation considering the personal tax rate should be: For the 500 units outside the tax-free savings account, the dividend is $6. With a 15% tax rate, the tax per share is $0.90 ($6 * 15%), leaving $5.10 per share. However, dividends are typically taxed at the personal tax rate for the individual, not a separate dividend tax rate. If we were to apply the personal tax rate of 30% instead, the calculation would be different. But given the options and the scenario described, it seems there was a mistake in my explanation regarding the application of tax rates. The correct after-tax income, considering the dividend tax rate correctly applied as per the question, would indeed be $5,100, not $5,550, as dividends outside the tax-free savings account are taxed at 15%, leading to the calculation of 500 * $5.10 = $2,550 outside the tax-free account plus $3,000 inside the tax-free account.

You Hold 1,000 Units of Calgary Commercial Property,a Real Estate