Updated Checked by the Tax-Services.ca editorial team How we check
Tax on dividend income works differently from tax on pay, and for most people it’s lighter. Canadian dividends are grossed up before they hit your return, then a dividend tax credit takes some of that back. Eligible dividends are grossed up by 38%. Other dividends are grossed up by 15%.
So $1,000 of eligible dividends is reported as $1,380, not $1,000. That surprises people the first time they see their T5 at tax time.
What are eligible and non-eligible dividends?
A corporation decides which label a dividend gets, and the label decides how it’s taxed on your return. Eligible dividends are usually the ones paid out of income the corporation already taxed at the general rate. Non-eligible dividends often come from income taxed at the small business rate. Your T5 or T3 states which type you got, so you don’t have to guess.
How does the gross-up and credit work?
The CRA prints the figures on its T5 pages. The federal credit is a percentage of the grossed-up amount, not of the cash you received.
| Type | Gross-up | Reported on $1,000 | Federal credit rate | Federal credit on $1,000 |
|---|---|---|---|---|
| Eligible | 38% | $1,380 | 15.0198% | $207.27 |
| Non-eligible | 15% | $1,150 | 9.0301% | $103.85 |
Your province adds its own credit. Ontario’s credit is 10% of the grossed-up amount for eligible dividends and 2.9863% for other dividends.
Here’s the logic in one line. The gross-up pretends the corporation’s tax was part of your income, and the credit hands that tax back. Whatever is left after the credit is your actual bill on the dividend.
What does $1,000 of dividends cost in federal tax?
Work it through for someone sitting inside the 14% federal bracket. Eligible dividends of $1,000 become $1,380 of income, which at 14% is $193.20 of federal tax. The credit is $207.27, which is more than the tax, so the federal side is nil on that slice. For non-eligible dividends, $1,150 at 14% is $161.00, less a $103.85 credit, leaves $57.15.
Move up into the 20.5% bracket and the picture changes. Eligible: $1,380 at 20.5% is $282.90, less $207.27, so $75.63. Provincial tax comes on top of all of these, and these figures leave it out. Think of them as a ballpark for the federal share only.
How much tax will you pay on $10,000 of dividends?
That turns on what else you earn. Take an Ontario worker on $60,000 of pay, with $8,320.50 of income tax in the income tax calculator. Add $10,000 on top and see what changes.
| Extra $10,000 received as | Extra tax |
|---|---|
| Eligible dividends | $788.97 |
| Non-eligible dividends | $2,027.86 |
| Interest or other income | $2,965.00 |
The same cash costs you $789 or $2,965 depending on where it came from. That gap is why people care about the label. Our dividend tax calculator lets you switch provinces and split the amount between types.
With no other income at all, the picture is even kinder. In our tool, $30,000 of eligible dividends leaves federal tax at zero, because the credit cancels the tax on the grossed-up $41,400. Ontario tax still shows up, so it’s not free money.
Where dividend income catches people out
The grossed-up amount is what counts as income, and our tool uses it for total income too. Anything the CRA tests against income sees the higher number. We haven’t checked each benefit, so look at the rules for the one you care about.
Two more slips. The credit only works for dividends from taxable Canadian corporations, and the tax credits calculator doesn’t include it, because the dividend tool does that job. And dividends paid inside a TFSA or RRSP are a different story, so this page only covers a non-registered account.
Own the company paying you? Then the corporation pays tax first, and the corporate tax calculator shows that side. Quebec and other provinces have their own credits, and our tool holds some of them as unconfirmed values.
Should you take dividends or salary from your own company?
A calculator alone can’t settle that. Dividends leave the corporation after it has paid its own tax, so the real comparison has two layers, and the combined result depends on the company’s rate, the province and the type of dividend paid. The table above only shows the personal side. Run both layers before you pick one, and check the CRA page on eligible dividends for how the label is set.
If you only hold shares in public companies, none of that applies. You get a T5, you copy the figures, and the credit is done for you.
Where the figures come from
The gross-up rates and federal credit rates are from the Canada Revenue Agency pages on T5 slips and on lines 12000 and 12010 of the return. The examples are estimates from our 2026 Ontario data. Provincial dividend credits for 2026 were not all published when we checked, so treat provincial results as close, not exact. This is an independent site with no tie to the CRA.
Frequently asked questions
What is the gross-up on dividends?
Eligible dividends are grossed up by 38% and other dividends by 15%. The grossed-up amount is what you report as income.
What is the federal dividend tax credit?
For dividends paid in 2019 or later the CRA shows 15.0198% of the grossed-up eligible amount and 9.0301% of the grossed-up non-eligible amount.
Are dividends taxed less than salary?
Usually, at the same income level. On top of $60,000 of pay in Ontario, $10,000 of eligible dividends adds about $789 of tax against $2,965 for interest.
How do you know if a dividend is eligible?
The T5 or T3 slip reports eligible and other dividends separately.
Do TFSA dividends get taxed?
This page covers non-registered accounts only. Check the CRA rules for a registered account.
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