Canadian Dividend Tax Credit Explained: Gross-Up, Eligible and Non-Eligible Dividends

When you receive a dividend from a Canadian corporation, you don’t pay tax on the amount you received. You pay tax on a larger, “grossed-up” amount, then deduct a dividend tax credit. This page explains how that works for eligible and non-eligible dividends, walks through one example, and shows the tax on extra dividend income at several incomes in Ontario and British Columbia. It is part of the investment tax hub; for how dividends compare with interest and capital gains, see dividend tax vs capital gains tax, and for gains see the capital gains inclusion rate.

How the gross-up and credit work

Ontario’s Ministry of Finance describes the purpose this way: individual investors pay tax on dividends, “which are paid from corporate earnings that have already been taxed”, and the federal and provincial dividend tax credits are intended to compensate shareholders for the income tax the corporation paid. The mechanics:

1. Gross-up. Add 38% to an eligible dividend, or 15% to a non-eligible one. The result is the taxable amount of the dividend.
2. Tax. The taxable amount goes on line 12000 of your return, and your taxable income is then taxed at the federal and provincial rates.
3. Credit. Deduct the federal dividend tax credit and your province’s dividend tax credit, each a percentage of the taxable amount.

The credit applies only to dividends from taxable Canadian corporations: the CRA says foreign dividends do not qualify for this credit. The rules in full:

• The dividends come from taxable Canadian corporations; foreign dividends don't qualify for the credit.
• A dividend is an eligible dividend only if it is a taxable dividend paid to a resident of Canada by a Canadian corporation that designates it as an eligible dividend; other taxable dividends from Canadian corporations are other than eligible (non-eligible) dividends.
• Eligible dividends usually come from Canadian public corporations and other corporations resident in Canada that are subject to the general corporate tax rate; non-eligible dividends usually come from Canadian-controlled private corporations subject to the small business tax rate.
• The taxable amount is the dividend plus a gross-up of 38% for an eligible dividend or 15% for a non-eligible dividend; it is reported on line 12000, and the taxable amount of non-eligible dividends also on line 12010.
• On a T5 slip the taxable amounts are in box 11 and box 25; on a T3 slip (mutual fund trusts and ETFs) they are in box 32 and box 50.
• The federal dividend tax credit is 15.0198% of the taxable amount of eligible dividends and 9.0301% of the taxable amount of other dividends, and is the total of the dividend tax credit amounts on your slips (T5 boxes 12 and 26, T3 boxes 39 and 51).
• If you didn't receive a slip for a dividend, the claim is worked out on the chart for line 40425 of the Federal Worksheet.
• Outside Quebec, a provincial or territorial dividend tax credit is also claimed, on line 61520 of Form 428, at the rates of the province or territory where you lived at the end of the year; Quebec residents claim Quebec's credit on their Revenu Québec return.

Eligible vs non-eligible dividends

Which treatment applies depends on how the paying corporation designates the dividend. A dividend is an eligible dividend only if it is a taxable dividend paid to a resident of Canada by a Canadian corporation that designates it as an eligible dividend; other taxable dividends from Canadian corporations are other than eligible (non-eligible) dividends. In practice, eligible dividends can come from Canadian public corporations and other corporations resident in Canada that are subject to the general corporate tax rate. Non-eligible dividends (the CRA calls them “other than eligible”) can come from Canadian-controlled private corporations subject to the small business tax rate. A T5 slip reports the two kinds in separate boxes (see reporting, below).

Ontario’s published table lowers its credit on non-eligible dividends to 1.9863% for 2027. Other provinces and territories set their own rates, shown on each province’s worksheet in the CRA’s income tax package (Quebec’s are on the Revenu Québec return).

Worked example: an eligible dividend in Ontario

Tax on extra dividends in Ontario and British Columbia

The table shows how much tax an extra $1,000 of dividends adds at five levels of taxable income, as a percentage of the $1,000. Each figure is computed from the 2026 federal and provincial brackets, basic personal amounts, the Ontario surtax and Health Premium, and the credit rates above: the tax on (income + taxable amount of the dividend), minus the tax on the income alone, minus the federal and provincial credits. The income before the dividend is treated as income with no CPP or EI (such as pension or interest income). Only Ontario and British Columbia are shown because those are the provinces whose 2026 credit rates are published on a provincial page we could check; the marginal tax rate calculator covers regular income in every province.

A figure below zero means the credits on the dividend are larger than the tax its grossed-up amount adds, so they also reduce the tax on your other income. That can only happen while you have other tax for the credits to reduce: the dividend tax credits lower tax payable, but they don’t take it below zero. Two details explain how the figures move with income:

• The gross-up raises your income for income-tested amounts. The taxable amount, not the dividend you received, is what counts toward your bracket and toward income-tested items such as the federal basic personal amount’s reduction at high incomes.
• Ontario’s surtax is computed before the Ontario credit is deducted. On Form ON428 the surtax is added to Ontario tax first and the Ontario dividend tax credit is subtracted afterwards, so above the surtax thresholds the surtax applies to tax on the grossed-up dividend. Ontario adds a surtax on top of its basic provincial tax: 20% of Ontario tax above $5,818 plus 36% of Ontario tax above $7,446 (2026 thresholds), which raises Ontario's top marginal rates above the bracket rates.

Dividends in a TFSA, RRSP or non-registered account

The gross-up and credit apply to dividends you report on your return (lines 12000 and 12010), and dividends earned inside a TFSA or RRSP are generally not reported as they arise.

• TFSA and RRSP. Interest, dividends and capital gains earned in a TFSA are generally tax-free, even when you withdraw them. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan, and you generally pay tax when you receive payments from it. Dividends earned in either account are therefore not reported as dividends, so there is no gross-up and no credit, and an RRSP withdrawal is reported as RRSP income on line 12900, not as a dividend, so the credit doesn’t apply to it.
• Non-registered account. Canadian dividends are grossed up and receive the credits as described above.

The TFSA vs RRSP comparison covers which account to fill first.

US and other foreign dividends

Foreign dividends are reported with your other investment income on line 12100, in Canadian dollars, and get no dividend tax credit (in the CRA’s words, foreign dividends do not qualify for this credit). Tax the other country withheld may be claimable as a foreign tax credit. For US dividends: Under Article XXI of the Canada-US tax treaty, US dividends paid to an RRSP or RRIF are exempt from US withholding; in a TFSA, FHSA, RESP or taxable account the standard 15% treaty rate applies, and only in a taxable account can it be recovered as a foreign tax credit. The US dividend withholding tax in RRSPs page has the detail.

Reporting dividends on your return

The CRA’s instructions for line 12000 say to enter the taxable amounts from T5 box 11 and box 25 (the taxable amounts of other than eligible and eligible dividends), and to enter T5 box 11 again on line 12010 (other than eligible dividends only). Dividends paid through a mutual fund trust are reported on a T3 slip instead: its taxable amounts are in box 32 and box 50 for line 12000, with T3 box 32 entered again on line 12010. Your federal dividend tax credit is the total of the credit amounts on your slips, which are boxes 12 and 26 on a T5 and boxes 39 and 51 on a T3. Outside Quebec, the provincial or territorial credit is worked out on your province’s worksheet and claimed on line 61520 of Form 428; Quebec residents claim Quebec’s credit on their Revenu Québec return. The T5 slip guide explains each box.

Dividends or salary from your own corporation

If you own a corporation and choose between paying yourself a salary or dividends, the personal tax rate on the dividend is only part of the comparison, since dividends are paid from corporate earnings that have already been taxed. The dividend vs salary calculator compares them.

Related pages

• Investment tax hub
• Dividend tax vs capital gains tax in Canada
• Capital gains inclusion rate
• Tax-loss harvesting
• Marginal tax rate calculator
• Tax brackets in Canada
• Best dividend ETFs in Canada