Course: Investment Planning
Lesson 3: Equity Securities
I don’t quite understand the corporate dividend exclusion. A corporation can exclude 70% of dividends from a different company when they own less than 20%. I don’t understand what happens when they own more than 20%. Also, is there a rule preventing companies from investing in their competitors?
Great to hear from you. Yeah, this is a little factoid not many people are familiar with.
You’ve got it correct when they own shares equal to less than 20% of the other company. In that case, they can exclude up to 70% of those dividends from income. If they own greater than 20% of the shares of the other company, they can exclude between 70% and 100% of the dividends from income. So, it’s essentially a feature that allows corporations to purchase stock in other corporations and include little or no dividend payments as income.
Generally, there are no restrictions. Utilities and the like – there are some restrictions. But again, for the most part, no.
Let me know any other questions here!