General information only — not financial advice for your situation.
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Plain English
A type of dividend from larger Canadian companies that gets special tax treatment. You pay less tax on it than on regular income thanks to a gross-up and tax credit system.
Technical definition
An eligible dividend is paid by Canadian corporations taxed at the general corporate rate. It receives a 38% gross-up and a federal dividend tax credit of 15.0198% of the grossed-up amount, resulting in preferential effective tax rates compared to ordinary income. The gross-up and credit mechanism integrates corporate and personal tax to reduce double taxation.
Examples
- • You receive $1,000 in eligible dividends. You gross it up by 38% to $1,380 on your return, then claim a federal dividend tax credit of about $207, resulting in less net tax than $1,000 of employment income.
- • In a low tax bracket, eligible dividends can have an effective tax rate near 0% due to the dividend tax credit.
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Every number on this site is sourced from CRA publications, the Income Tax Act, or provincial fiscal releases. We show the math, cite the sources, and never tell you what to do with your money.