Tax Rates -> Dividend tax credit
Income Tax Act s. 82(1)(b)(ii)(D), 121(b)(iv)
See the tablesof dividend tax credit rates for eligible dividends for the federal, provincial and territorialrates.
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:
 | public corporations resident in Canada |
| other corporations resident in Canada that are not Canadian-controlled private corporations (CCPCs) and are subject to the general corporate tax rate |
| 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 anindividual toinclude in income. The taxcredit is calculated as a portion of the gross-up. See the tables belowfor gross-up and Federal tax credit percentages.
See our InvestmentIncome Tax Calculator, which demonstrates how eligible Canadiandividends 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 clawedback. However, the grossed-up income can also affect other income-testedbenefits.
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
| 10/17 for 2010 |
| 13/23 for 2011 |
| 6/11 for 2012 and later years |
FederalDividend Tax Credit Rate for Eligible Dividends
| 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% | 15.0198% |
| DTC as % of actual dividends | 27.5% | 25.88% | 23.17% | 20.73% |
The rate used to calculate the dividend tax credit for the T5 is 15.0198% of the taxable (grossed-up) dividend.
See the Tables of Marginal Tax Rates for marginal tax rates for eligible dividends for each province and territory.
TaxTips.ca Resources
Maximum amount of dividends that can be received before any tax is payable.
Revised: July 13, 2024
FAQs
Federal Dividend Tax Credit Rate for Eligible Dividends
What is the dividend tax credit for eligible dividends? ›
Eligible dividends are those where the corporation has paid a higher tax rate. If your dividend is eligible, you must add back 38% of your received dividend and deduct 15.0198% from the gross taxable amount as a federal dividend tax credit.
Does CA tax qualified dividends? ›
In California, all dividends are taxed as part of ordinary income. This is tax on the interest you earn on a deposit account like a checking or savings account, a certificate of deposit, or on dividends earned on an account held at a credit union.
How to calculate non-eligible dividend tax credit? ›
Your dividend credit amount will show up on your T5, T4PS, T3, or T5013 slips. Multiply the taxable amount of your eligible dividends (Line 12000 on your tax return) by 15.0198% and your non-eligible dividends (Line 12010) by 9.0301%. This will tell you what the dividend tax credit is for the year.
What is the qualified dividend rule? ›
Understanding Qualified Dividends
A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date.2 The ex-dividend date is one market day before the dividend's record date.
What dividends qualify for a dividend refund? ›
A dividend refund arises if you pay taxable dividends to shareholders, and if there is an amount of NERDTOH or ERDTOH at the end of the tax year. To claim a dividend refund, you have to have made an actual payment to the shareholders, unless the dividend is considered paid (a deemed dividend).
How do I know if I am eligible for dividends? ›
Here's how they work: To be eligible to receive a dividend declared for a stock, you must buy the stock, or already own it, before the ex-dividend date (otherwise known as the ex-date). That purchase cutoff time is two days before the date of record.
Does California tax tax exempt dividends? ›
Certain mutual funds pay “exempt-interest dividends.” If the mutual fund has at least 50 percent of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax.
Does California have a dividends received deduction? ›
R&TC Section 24411 allows for a 75% deduction of a portion of the dividends received and included in the water's-edge return. Dividends received from banks qualify for the water's-edge dividend deduction. Both business and nonbusiness dividends qualify for the dividend deduction.
How do you avoid tax on qualified dividends? ›
Strategies such as contributions to retirement accounts and health savings accounts (HSAs) may reduce your income below the zero-capital gains tax threshold. As a result, you wouldn't owe any taxes on qualified dividends.
Eligible dividends are taxed more favourably than non-eligible dividends because the corporation has paid tax at higher rates and the individual receiving the dividend pays less. Dividends are taxed at lesser rates than employment income and many other types of income in your hands personally.
How to calculate tax on qualified dividends? ›
Key Takeaways
- For 2023, your “qualified” dividends may be taxed at 0% if your taxable income falls below $44,625 (Single or Married Filing Separately), $59,750 (Head of Household), or $89,250 (Married Filing Jointly or Qualifying Surviving Spouse).
- Above those thresholds, the qualified dividend tax rate is 15%.
The more dividends you receive, the higher your taxable income. It is important to keep in mind the gross- up rate on dividends will increase your taxable income. For example, $1 of actual eligible dividend is reported as $1.38 taxable income on your tax return.
How to report qualified dividends? ›
Qualified dividends are reported on Form 1099-DIV in line 1b or column 1b. However, not all dividends reported on those lines may have met the holding period requirement. Those non-qualified dividends, as well as other ordinary dividends, may be taxed at your ordinary income tax rate, which can be as high as 37%.
Do I subtract qualified dividends from ordinary dividends? ›
Qualified dividends are a subset of your ordinary dividends. Qualified dividends are taxed at the same tax rate that applies to net long-term capital gains, while non-qualified dividends are taxed at ordinary income rates. It is possible that all of your ordinary dividends are also qualified dividends.
What is the new dividend rule? ›
Dividend payout ratio cap:
40% if net NPA is less than 1% 35% if net NPA is greater than or equal to 1% but less than 2% 25% if net NPA is greater than or equal to 2% but less than 4% 15% if net NPA is greater than or equal to 4% but less than 6%
What is the credit for dividends? ›
The dividend-credit rule is a principle that says when a company has money left over from unpaid dividends on preferred stock, it must use that money to pay dividends on preferred stock before paying dividends on common stock. This is also known as the cast-iron-pipe doctrine.
Who is eligible for the dividends received deduction? ›
A corporation is entitled to a dividends-received deduction of a percentage of dividends received from a domestic corporation that is subject to income tax. § 243(a). No deduction is allowable, however, if the taxpayer did not hold the underlying shares for a specified period of time.
How to calculate tax on dividend income? ›
There is not a specific amount of tax you pay on your dividend income. The tax you end up paying depends on the dividend amount you get in a financial year and your applicable tax slab. However, if the dividend amount is higher than Rs. 5,000, the company will deduct 10% TDS from the payable dividend amount.
