A payment to a customer includes the issuance of a certificate of indebtedness or a share of the corporation to the customer.
The amount actually paid to the taxpayer, and received by the taxpayer, must be included in the income of the taxpayer under S. 135(7) unless the patronage dividend relates to consumer purchases. These are not taxable.
Tax withheld on patronage dividend payments should be claimed as a credit. This is true whether or not the patronage dividend is taken into income.
Example: Patronage Dividend
Issue: Joan is a farmer. She buys her groceries and her fuel at the local co-operative. She has received a T4A representing her patronage dividend for the prior year. Her dividend was $1,000, against which $250 of tax was withheld. Joan's records show that 40% of her expenditures at the Co-op related to groceries, with the balance to fuel. How does she report the income?
Answer: $600 of the patronage dividend should be reported on her statement of farming income. This portion of the dividend, which relates to her farm fuel purchases, is taxable. The other $400, which relates to her consumer purchases, is not taxable.
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