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Eligible Dividend Tax Credit
Canadian Tax and
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Personal Tax   ->   Dividend tax credits
    Tax Rates   -> Dividend tax credit

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:

bullet public corporations resident in Canada
bullet other corporations resident in Canada that are not Canadian-controlled private corporations (CCPCs) and are subject to the general corporate tax rate
bullet 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

bullet 10/17 for 2010
bullet 13/23 for 2011
bullet 6/11 for 2012 and later years
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% 15.02%
DTC as % of actual dividends 27.5% 25.88% 23.17% 20.73%

What did this do to the marginal tax rates for eligible dividends?

Federal Marginal Tax Rates on Eligible Dividends
2010 Tax Brackets Other
Tax Rate
Eligible Dividends Marginal Tax Rates
2009 2010 2011 2012 - 2015
First $40,970 15% -5.75% -4.28% -2.02% -0.03%
over $40,970 up to $81,941 22% 4.40% 5.80% 7.85% 9.63%
over $81,941 up to $127,021 26% 10.20% 11.56% 13.49% 15.15%
over $127,021 29% 14.55% 15.88% 17.72% 19.29%

In 2016 the tax rate for the 2nd tax bracket was reduced, and a new top tax bracket was introduced for over $200,000 of taxable income.  This reduced the marginal tax rate for the 2nd bracket from 9.63% to 7.56%, and created a new marginal tax rate of 24.81% for the highest bracket.  The tax bracket thresholds are indexed each year.  For all marginal tax rates and thresholds for the current year, federally and for each province and territory, see the Tables of Marginal Tax Rates. Resources

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

Revised: October 23, 2021


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