Canada Dividend Tax Credit Guide
the Canadian dividend tax credit system. Canada uses the integration principle — the corporate income is taxed once at the corporate level and once at the personal level, but the total tax is approximately equal to the top personal tax rate (preventing the "double taxation" and the "tax deferral"). The dividends are classified as "eligible dividends" (paid out of the corporate income taxed at the general corporate rate — the public corporations and the CCPCs with the income above the small business limit) and "non-eligible dividends" (paid out of the corporate income taxed at the small business rate — the CCPC income below $500,000). The gross-up of 38% (for the eligible dividends) and 15% (for the non-eligible dividends) increases the dividend income by the prescribed percentage. The federal dividend tax credit is calculated as 6/11 of the gross-up (for the eligible dividends) and 9/13 of the gross-up (for the non-eligible dividends). The provincial dividend tax credits vary by the province. The effective tax rate on the eligible dividends for the top bracket taxpayer is approximately 39% to 45% (depending on the province), compared to the 53.5% top marginal rate on the interest income. The dividend tax credit is non-refundable (the taxpayer must have the tax payable to use it).
Eligible vs Non-Eligible Dividends
- Eligible dividends: The dividends paid by the public corporations (the TSX-listed companies) and the CCPCs with the income taxed at the general corporate rate (the "general rate income pool" or the "GRIP"). The federal gross-up is 38% (the dividend of $100 is reported as $138 on the tax return). The federal credit is 6/11 of the gross-up amount (6/11 of $38 = $20.73). The net federal tax on the $100 dividend is $15.93 (before the provincial credits).
- Non-eligible dividends: The dividends paid by the CCPCs from the income taxed at the small business rate (the "low rate income pool" or the "LRIP"). The federal gross-up is 15% (the dividend of $100 is reported as $115 on the tax return). The federal credit is 9/13 of the gross-up amount (9/13 of $15 = $10.38). The net federal tax on the $100 dividend is $11.54 (before the provincial credits).
- Integration: The dividend tax credit system ensures that the total tax paid (the corporate tax + the personal tax on the dividend) is approximately equal to the personal tax that would have been paid if the income had been earned directly (the "integration"). The integration is more effective for the eligible dividends than the non-eligible dividends.
- Dividend designation: The corporation must designate the dividend as the "eligible dividend" in the resolution (or the board meeting minutes). The corporation reports the eligible dividends to the CRA on the T5 slip (Box 24 for the eligible dividends, Box 10 for the other dividends).
Federal & Provincial Dividend Tax Credits (2025)
- Federal credit (eligible): 6/11 of the gross-up (approximately 20.73% of the grossed-up amount). The effective federal tax rate on the eligible dividends (before the provincial credits) is approximately 15.9% at the top bracket.
- Federal credit (non-eligible): 9/13 of the gross-up (approximately 10.38% of the grossed-up amount). The effective federal tax rate on the non-eligible dividends is approximately 11.5% at the top bracket.
- Ontario dividend tax credit: The Ontario credit for the eligible dividends is 10% of the grossed-up amount (the "Ontario dividend tax credit"). The Ontario credit for the non-eligible dividends is 3.913% of the grossed-up amount.
- Quebec dividend tax credit: The Quebec credit for the eligible dividends is 11.4% of the grossed-up amount. The Quebec credit for the non-eligible dividends is 8.3% of the grossed-up amount.
- British Columbia: The BC credit for the eligible dividends is 12% of the grossed-up amount. The BC credit for the non-eligible dividends is 3.58% of the grossed-up amount.
- Alberta: The Alberta credit for the eligible dividends is 10% of the grossed-up amount. The Alberta credit for the non-eligible dividends is 2% of the grossed-up amount.
Corporate Dividend Rules
- Canadian-controlled private corporation (CCPC): The private corporation controlled by the Canadian residents. The CCPC is eligible for the small business deduction (SBD) on the first $500,000 of the active business income. The dividends paid from the SBD income are the non-eligible dividends. The dividends paid from the income above the SBD limit (the "general rate income") are the eligible dividends.
- RDTOH (Refundable Dividend Tax On Hand): The CCPC pays the refundable tax on the investment income (the Part I tax at 38.67% + the Part IV tax on the dividends received at 33.33%). The refundable portion (the RDTOH) is refunded when the CCPC pays the dividends. The RDTOH ensures the integration of the investment income through the CCPC.
- CGA (Capital Gains Refund): The CCPC can also receive the capital gains refund (the Part I refundable tax on the capital gains). The capital gains refund is calculated as the refundable portion of the Part I tax on the net capital gains.
- Dividend stop-loss rules: The capital loss on the share sale is reduced by the dividends received on the shares (the "dividend stop-loss" rule under s. 112(3) of the ITA). The rule prevents the double-dip — the taxpayer cannot claim the capital loss on the shares AND the dividend deduction.
For the capital gains inclusion rates and the principal residence exemption, see our Capital Gains Tax Guide →. For the corporate taxation and the CCPC rules, see our Corporate Tax Guide →.