TaxTips.ca - Canadian dividend tax credit for small business (non-eligible) dividends, 2007 to 2012 rates

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Personal Tax -> Dividend tax credits -> Non-eligible Dividend Tax Credit

Non-eligible (small business) dividend tax credit

Non-eligible, or ordinary, dividends are any dividends issued by a Canadian corporation, public or private, which are not eligible for the enhanced dividend tax credit.

The non-eligible dividend tax credit rate is used for dividends received from Canadian-controlled private corporations (CCPCs), to the extent that their income is subject to tax at the small business rate. A portion of dividends from large public corporations may also be classified as not being eligible for the enhanced dividend tax credit and would therefore be classified as non-eligible dividends.

When an individual receives non-eligible dividends, the amount included in income is 125% of the actual dividend. The additional 25% is referred to as the gross-up.

For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, approximately $47,892 can be earned in 2012 before any federal taxes are payable. For the maximum amounts that can be earned federally and in each province, see the table in the article on alternative minimum tax.

Federal & Provincial/Territorial small business dividend tax credit rates

Small Business Dividend Tax Credit Rates as a % of Grossed-up Taxable Dividends (25% gross-up)
Year	Federal	AB	BC	MB	NB	NL	NS	NT	NU	ON	PE	QC	SK (1)	YT(2)
2012	13.33%	3.5%	3.4%	1.75%	5.3%	5%	7.7%	6%	4%	4.5%	1.0%	8%	4%	4.51%
2011	13.33%	3.5%	3.4%	1.75%	5.3%	5%	7.7%	6%	4%	4.5%	1.0%	8%	5%	4.51%
2010	13.33%	3.5%	3.4%	2.5%	5.3%	5%	7.7%	6%	4%	4.5%	2.1%	8%	6%	4.45%
2009	13.33%	3.5%	4.2%	2.5%	5.3%	5%	7.7%	6%	4%	4.5%	3.2%	8%	6%	4.45%
2008	13.33%	4.5%	5.1%	3.15%	5.3%	5%	7.7%	6%	4%	5.13%	4.3%	8%	6%	4.45%
2007	13.33%	5.5%	5.1%	3.67%	5.3%	5%	7.7%	6%	4%	5.13%	6.5%	8%	6%	4.45%
Small Business Dividend Tax Credit Rates as a % of Actual Dividends
Year	Federal	AB	BC	MB	NB	NL	NS	NT	NU	ON	PE	QC	SK	YT(2)
2012	16.67%	4.38%	4.25%	2.19%	6.63%	6.25%	9.63%	7.5%	5%	5.63%	1.25%	10%	5.00%	5.64%
2011	16.67%	4.38%	4.25%	2.19%	6.63%	6.25%	9.63%	7.5%	5%	5.63%	1.25%	10%	6.25%	5.64%
2010	16.67%	4.38%	4.25%	3.13%	6.63%	6.25%	9.63%	7.5%	5%	5.63%	2.63%	10%	7.5%	5.56%
2009	16.67%	4.38%	5.25%	3.13%	6.63%	6.25%	9.63%	7.5%	5%	5.63%	4.00%	10%	7.5%	5.56%
2008	16.67%	5.63%	6.38%	3.94%	6.63%	6.25%	9.63%	7.5%	5%	6.41%	5.38%	10%	7.5%	5.56%
2007	16.67%	6.88%	6.38%	4.59%	6.63%	6.25%	9.63%	7.5%	5%	6.41%	8.13%	10%	7.5%	5.56%

(1) SK rates reduced (SK 2011 Budget) for 2011/2012 in conjunction with the reduction in the small business corporate income tax rate.
(2) YT rates as per Bill 92 passed December 10, 2010. Dependent on corporate income tax rates.

Rates are as known March 31, 2011.

See the following example of the calculation of the taxes payable on small business dividends for taxpayers in the lowest tax brackets:

Small business dividend tax credit using Ontario tax rates for 2009		Tax Bracket 1		Tax Bracket 2
Combined federal + Ontario tax rate		21.05%		24.15%

Dividends eligible for enhanced DTC		$100.00		$100.00
Gross-up		25.00		25.00
Taxable dividend		$125.00		$125.00

Federal + ON tax (at 21.05% & 24.15%)		$26.31		$30.19
Less dividend tax credits:
Federal	13.333% x $125	$16.67		$16.67
Ontario	5.13% x $125	6.41		6.41
Total dividend tax credits			$23.08		$23.08
Tax payable on dividends		$3.23		$7.11

Marginal tax rate		3.23%		7.11%

Revised: January 28, 2012

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