Dividend Tax Credit for Eligible Dividends

Income Tax Act s. 82(1)(b)(ii)(D), 121(b)(iv)

See the tables of dividend tax credit rates for eligible dividends for the federal, provincial and territorial rates.

Note: The gross-up and dividend tax credit are applicable to individuals, not corporations.

138% of eligible dividends are included in taxable income for individuals. The additional 38% is called the "gross-up", which is meant to represent the corporate income tax that has been paid on the income earned by the corporation. The dividend tax credit is then calculated, with the intention of providing a tax credit for the corporate income tax paid. The result is that the marginal tax rate for eligible dividends is quite a bit lower than the marginal tax rate for employment income, interest and foreign dividends. It is also lower than the marginal tax rate for capital gains, but only to a certain level of taxable income. See the tables of marginal tax rates for your province for the various marginal tax rates.

There is a dividend tax credit for eligible Canadian dividends received by individuals after 2005 from:

	public corporations resident in Canada
	other corporations resident in Canada that are not Canadian-controlled private corporations (CCPCs) and are subject to the general corporate tax rate
	CCPCs resident in Canada to the extent that their income (other than investment income, which is eligible for a special refundable tax) is subject to tax at the general corporate tax rate

A portion of dividends paid by public corporations will sometimes be not eligible for the enhanced dividend tax credit, but only for the regular dividend tax credit for non-eligible Canadian dividends.

With the enhanced dividend tax credit, a "gross-up" is added to the actual dividend to determine the taxable dividend amount for an individual to include in income. The tax credit is calculated as a portion of the gross-up. See the tables below for gross-up and Federal tax credit percentages.

See our Investment Income Tax Calculator, which demonstrates how eligible Canadian dividends are subject to less tax than foreign dividends and interest income, even when the Old Age Security (OAS) and the age amount tax credit are clawed back. However, the grossed-up income can also affect other income-tested benefits.

Changes to the Dividend Tax Credit

In keeping with the previously announced reductions to the federal corporate income tax rates, the 2008 Federal Budget reduced the gross-up on dividends eligible for the enhanced dividend tax credit, and reduced the dividend tax credit rate, beginning in the 2010 tax year. The dividend tax credit factor of 11/18ths of the gross-up was changed to

	10/17 for 2010
	13/23 for 2011
	6/11 for 2012 and later years

Federal Dividend Tax Credit Rate for Eligible Dividends

Federal Eligible Dividend Tax Credit (DTC)

	2008/09	2010	2011	2012+
Gross-up (ITA s. 82(1)(b)(ii))	45%	44%	41%	38%
DTC as % of grossed-up dividends (ITA s. 121(b))	18.9655%	17.98%	16.44%	15.0198%
DTC as % of actual dividends	27.5%	25.88%	23.17%	20.73%

The rate used to calculate the dividend tax credit for the T5 is 15.0198% of the taxable (grossed-up) dividend.

See the Tables of Marginal Tax Rates for marginal tax rates for eligible dividends for each province and territory.

TaxTips.ca Resources

Maximum amount of dividends that can be received before any tax is payable.

Revised: October 15, 2024