Mr. Chen, in a 40% marginal tax bracket, receives a non-eligible dividend of $500 from a Canadian company. Assuming a gross-up rate of 15% and a federal dividend tax credit rate of 9.03% of the grossed-up dividend, calculate his federal tax payable on this dividend.

Question: Mr. Chen, in a 40% marginal tax bracket, receives a non-eligible dividend of $500 from a Canadian company. Assuming a gross-up rate of 15% and a federal dividend tax credit rate of 9.03% of the grossed-up dividend, calculate his federal tax payable on this dividend.

Answer options:

• CAD 200.00
• CAD 145.00
• CAD 175.76 ✅ CAD 162.77

Correct answer: CAD 162.77

Explanation: The grossed-up dividend is $500 * (1 + 0.15) = $575. The federal tax before the credit is $575 * 0.40 = $230. The federal dividend tax credit is $575 * 0.0903 = $51.92. The net federal tax payable is $230 - $51.92 = $178.08.