If you are a shareholder in a Canadian corporation, you will be very familiar with dividends. Depending on the company and the shares held, dividends may be paid out quarterly or annually and can have a significant impact on an individual’s annual income.

Navigating the Canadian Dividend Tax Credit can be complex, depending on an individual’s financial situation and goals. Claiming the correct tax credit and reporting dividends from the right sources is imperative for sound tax planning and minimizing tax payable while accounting for the tax already paid at the corporate level.

Find out if you are eligible for the Dividend Tax Credit in Canada and how to claim it. How can it help you work towards your financial goals?

What Is the Dividend Tax Credit in Canada?

Dividends are a distribution of profits by a corporation to its shareholders. When a Canadian corporation earns a profit or surplus, it may pay a proportion of the profit as a dividend to shareholders.

In Canada, dividends must be reported on your tax return each year to the CRA (Canada Revenue Agency). You may then also be eligible to receive the Dividend Tax Credit. This is a non-refundable credit that reduces the amount of tax you owe and helps account for corporate income tax already paid on the earnings used to pay the dividend.

Because dividends are generally paid from after-tax corporate earnings, the Canadian tax system uses a gross-up and Dividend Tax Credit mechanism to integrate corporate and personal taxation. The Dividend Tax Credit provides individuals with tax relief that recognizes tax already paid at the corporate level, although it does not necessarily eliminate all personal tax payable on dividend income.

Importantly, the personal Dividend Tax Credit applies to individuals, not corporations. If your corporation receives dividends from another Canadian corporation, it is not eligible for the personal DTC; separate corporate tax rules apply to intercorporate dividends.

Eligible Dividend Tax Credit vs Non-Eligible Dividend Tax Credit

For Canadian tax purposes, taxable dividends from Canadian corporations are generally classified as eligible or non-eligible dividends. Foreign dividends are treated separately.

Both eligible and non-eligible dividends from Canadian corporations can qualify for the Dividend Tax Credit in Canada, while foreign dividends do not qualify for the Canadian Dividend Tax Credit.

Eligible Dividends and the Enhanced Dividend Tax Credit

Eligible dividends are dividends designated as eligible by Canadian corporations that are entitled to make this designation. They are commonly paid from corporate income that has been subject to the general corporate income tax rate.

What is important to note about eligible dividends is that they qualify for the Enhanced Dividend Tax Credit. When an eligible dividend is reported for personal income tax purposes, its taxable amount is increased through a mechanism known as the “gross-up.” The individual then claims the applicable federal and provincial or territorial Dividend Tax Credits, which recognize corporate income tax already paid on the earnings used to fund the dividend.

For 2026, the gross-up rate is 38% for eligible dividends. See below for more details.

Non-Eligible Dividends

Non-eligible dividends, also known as other-than-eligible dividends, are commonly paid by Canadian-controlled private corporations (CCPCs) from income that benefited from the small business deduction or was otherwise taxed at a lower corporate tax rate.

Because the underlying corporate income generally bears less corporate tax than income used to pay eligible dividends, non-eligible dividends are subject to a lower gross-up and a lower Dividend Tax Credit. They do not qualify for the Enhanced Dividend Tax Credit available for eligible dividends.

For 2026, the gross-up rate is 15% for non-eligible dividends. See below for more details.

Foreign Dividends

Foreign dividends are not eligible for the Dividend Tax Credit in Canada. Unlike eligible and non-eligible dividends from Canadian corporations, foreign dividends are generally included in taxable income without a dividend gross-up or Canadian Dividend Tax Credit.

However, if foreign tax was paid or withheld on the dividend income, the individual may be eligible to claim a foreign tax credit, subject to applicable Canadian tax rules.

Dividend Income and the Gross-Up

Your dividend income must be reported on your tax return. For eligible and non-eligible dividends from Canadian corporations, the taxable amount includes what is known as the “gross-up.” The gross-up increases the actual amount of the dividend for tax purposes to approximate the corporation’s pre-tax income.

You do not pay the gross-up as a separate tax. Instead, the grossed-up amount is included in your taxable income, and you may then claim the applicable Dividend Tax Credit. Together, the gross-up and Dividend Tax Credit are designed to account for corporate income tax already paid and integrate corporate and personal taxation.

How to Calculate the Dividend Tax Credit

When calculating the Dividend Tax Credit, there are a lot of numbers and percentages to keep in mind. Determining which Dividend Tax Credit you are eligible for, calculating the gross-up, calculating the Federal Dividend Tax Credit, and calculating the provincial Dividend Tax Credit can all add up to confusion.

First, we must calculate the dividend income with gross-up. Let’s take a simplified example of Brian Smith and assume an effective tax rate of 25% for illustration purposes. He receives $300 in eligible dividends and $200 in non-eligible dividends during the tax year. The taxable amounts of the dividends are grossed up using the applicable rates — 38% for eligible dividends and 15% for non-eligible dividends, respectively.

• $300 × 1.38 = $414
• $200 × 1.15 = $230
• Total taxable amount = $414 + $230 = $644

Brian’s total taxable amount of dividends reported on his return would be $644.

For this simplified example, applying the assumed 25% tax rate results in $161 of tax on this income. In practice, the actual tax payable depends on factors such as the individual’s taxable income, marginal tax rates, province or territory of residence, and applicable tax credits.

Next, we can calculate the Dividend Tax Credit.

Calculate the Federal Dividend Tax Credit

The Federal Dividend Tax Credit is designed to reduce the amount of tax an individual pays on dividend income from taxable Canadian corporations. Because the grossed-up amount of eligible and non-eligible dividends is included in taxable income, individuals may be eligible to claim a credit that recognizes corporate income tax already paid on the earnings used to fund the dividends.

This generally results in preferential tax treatment for eligible and non-eligible Canadian dividends compared with certain other types of income, although the actual tax payable depends on the individual’s income level and province or territory of residence.

The Federal Dividend Tax Credit rate differs between eligible and non-eligible dividends. It does not apply to foreign dividends.

Continuing the previous simplified example, Brian’s dividend tax credit on the federal level would be:

• $414 × 0.150198 = $62.18
• $230 × 0.090301 = $20.77
• $62.18 + $20.77 = $82.95

Brian’s federal Dividend Tax Credit would be $82.95. In this simplified example, the Federal Dividend Tax Credit therefore lowers Brian’s tax liability on this income from $161 to $78.05.

The federal Dividend Tax Credit is claimed on Line 40425 of the income tax and benefit return.

Provincial Dividend Tax Credits Calculator

In addition to the Federal Dividend Tax Credit in Canada, there are also territorial and provincial dividend tax credits. These provincial dividend tax credits can further decrease an individual’s tax liability on top of the Federal Dividend Tax Credit.

The Dividend Tax Credit rates vary from province to province and differ between eligible and non-eligible dividends. For example, if Brian Smith is an Ontario resident, he would be eligible for an additional 10% Ontario Dividend Tax Credit for eligible dividends and 2.9863% on his non-eligible dividends to further decrease his tax liability.

For up-to-date dividend tax credit rates and calculators for tax planning purposes, contact Accountor CPA.

Provincial or territorial Dividend Tax Credits are generally claimed on Line 61520 of the applicable provincial or territorial Form 428. Quebec residents follow the applicable Revenu Québec rules.

How to Receive the Dividend Tax Credit

To be eligible to receive the Dividend Tax Credit, you need to declare your dividend income on your taxes. The CRA designates tax forms to declare investment and dividend income that should be used to calculate your dividends and relevant tax credits.

You must correctly report whether dividends from taxable Canadian corporations are eligible or non-eligible dividends. Foreign dividends are reported separately and do not qualify for the Canadian Dividend Tax Credit.

The forms that you may receive that denote your dividends and help you calculate your Dividend Tax Credit are:

• T5 Statement of Investment Income: A T5 reports various types of investment income, including eligible and non-eligible dividends, interest, and certain foreign income. A T5 reports various types of investment income, including eligible and non-eligible dividends, interest, and certain foreign income. Even if you do not receive a T5 slip, you are still required to report taxable investment income.
• T4PS Statement of Employee Profit-Sharing Plan Allocations and Payments: You may receive a T4PS if you are a beneficiary of an employee profit-sharing plan (EPSP). The slip can include eligible and non-eligible dividends from taxable Canadian corporations allocated through the plan.
• T3 Statement of Trust Income Allocations and Designations: This form reports income allocated or designated to beneficiaries by trusts and may include eligible and non-eligible dividends from Canadian corporations. It is also commonly used for income distributed by certain mutual fund trusts.
• T5013 Statement of Partnership Income: This form is used to declare partnership income and may include eligible and non-eligible dividend income allocated through a partnership.

After you have made the appropriate calculations for the gross-up and Dividend Tax Credits, enter the federal Dividend Tax Credit amount on Line 40425 of your income tax and benefit return to claim it.

Are You Eligible for the Dividend Tax Credit?

Are you a shareholder in a taxable Canadian corporation? Have you received eligible or non-eligible dividends from a Canadian corporation this year? If so, you may be eligible for the Dividend Tax Credit.

Claiming the Dividend Tax Credit is a key aspect of tax planning in Canada. If you are qualified to receive this tax credit, Accountor CPA can help you report your income, file your income taxes, and provide tax planning consulting to manage your tax payable and claim the tax credits available for your situation.

Contact the professionals at Accountor CPA to learn how you can make the Dividend Tax Credit work for you. Take control of your taxes and plan for a strong financial future with the CPAs on our team.