Yang owns 800 units in a mutual fund that invests exclusively in the shares of Canadian public corporations. During 2020, the fund paid a distribution of $1.50 per unit. One-half of the distribution was eligible dividend income and the remaining half was capital gains. By how much will Yang's Taxable Income increase as a result of the distribution?
A)$600.
B)$1,128.
C)$1,200.
D)$1,428.

Question

Quizplus · Accepted Answer

Yang's taxable income increases by the grossed-up amount of the eligible dividends and the capital gains. Eligible dividends are grossed up by 38%, so $600 * 1.38 = $828. Capital gains are taxed at 50%, so $600 * 0.50 = $300. Total increase in taxable income is $828 + $300 = $1,128.

Yang Owns 800 Units in a Mutual Fund That Invests