Updated Checked by the Tax-Services.ca editorial team How we check
Canadian dividends are taxed at lower rates than salary because of the gross-up and dividend tax credit. Eligible dividends are grossed up by 38% and other dividends by 15%, per the CRA’s tax folio, and a credit is taken off afterwards. On $10,000 of eligible dividends, on top of $60,000 of other income, our calculator shows about $980 of extra tax in Alberta and $789 in Ontario.
How are eligible and non-eligible dividends taxed?
You report a bigger number than the cheque you received. That’s the gross-up, and it’s there because the company already paid corporate tax. Then the federal credit gives some of that back.
| Eligible dividends | Non-eligible dividends | |
|---|---|---|
| Gross-up | 38% | 15% |
| Federal credit (CRA folio) | 6/11 of the gross-up | 9/13 of the gross-up |
| Federal credit as a share of the taxable amount | about 15.02% | about 9.03% |
The corporation decides which kind it’s paying and has to tell you in writing. The CRA’s Income Tax Folio on taxable dividends is blunt about the default.
All other dividends, including those that have not been properly designated, are considered to be non-eligible dividends.
Income Tax Folio S3-F2-C2, Taxable Dividends from Corporations Resident in Canada, canada.ca
Your T5 slip shows the taxable amount, gross-up included, and the credit. Trust those boxes rather than working backwards from the deposit.
What does the gross-up look like in dollars?
Work it through for a $10,000 dividend. Eligible: the 38% gross-up adds $3,800, so $13,800 goes on your return, and the federal credit is 6/11 of $3,800, or about $2,073. Non-eligible: the 15% gross-up adds $1,500, so $11,500 goes on your return, and the federal credit is 9/13 of $1,500, or about $1,038. The credit comes off your federal tax afterwards, and your province adds its own on top.
What does a $10,000 dividend really cost you in tax?
Take someone with $60,000 of other income. Here’s what the dividend tax calculator gives for $10,000 received.
| Type | Taxable amount | Extra tax, Alberta | Extra tax, Ontario |
|---|---|---|---|
| Eligible | $13,800 | $980 | $789 |
| Non-eligible | $11,500 | $2,183 | $2,028 |
Same cheque, more than double the tax when it’s non-eligible. So it pays to know which kind you’re getting.
A caveat on the provincial half. The federal rates come from the CRA, but each province sets its own dividend credit, and those rates change from time to time. Treat the two provincial columns as ballpark estimates and check your own province’s form.
Do dividends push you into a higher bracket?
They can, because the grossed-up amount is what counts as income, and not the cash. A $10,000 eligible dividend adds $13,800 to your taxable income. It also feeds into income tests for some benefits. The marginal tax rate calculator shows where your next dollar of ordinary income sits, and the income tax calculator lets you add dividends to a full picture of your year.
With little other income the credit can wipe out the tax on the dividend altogether. In our Alberta estimate, $20,000 of eligible dividends with no other income comes to no extra tax. Add $40,000 of other income and the extra tax on those dividends is about $372.
Picture a retiree in Moncton living on a small pension who also gets a few thousand in eligible dividends from bank shares. Much of that income can come out nearly tax-free, which is why dividends are popular with people at lower incomes. The same cheque at a higher income is a different story, and the benefit income tests mentioned above can nibble at it too.
Can you compare dividends with other income?
Yes, and you should before you decide how a company pays you. Put the same cash in as salary and as an eligible dividend in the income tax calculator, then read the tax line. It leaves out the corporate side, so it can’t say which route costs less overall. The RRSP calculator helps if part of the money is headed for retirement.
What goes wrong with dividend income?
People assume every Canadian dividend is eligible. It isn’t. Check the T5.
Another trap is forgetting instalments. Dividends have no tax taken off at source. If your net tax owing passes $3,000 ($1,800 in Quebec), and it did in 2025 or 2024 as well, you may have to pay in instalments: March 15, June 15, September 15 and December 15 on the 2026 schedule. The tax instalments calculator models equal payments only.
Dividends from foreign companies aren’t covered on this page.
Where we got these figures
The gross-up rates, credit fractions and eligible designation rules come from the CRA‘s Income Tax Folio on taxable dividends. Instalment rules come from the CRA’s instalment pages. Estimates use our calculators with basic credits, and the provincial credits are estimates, as noted above. This is an independent guide, separate from any government body.
Frequently asked questions
What is the gross-up on Canadian dividends?
The CRA's folio gives 38% for eligible dividends and 15% for non-eligible dividends. You report the grossed-up amount and then claim a credit.
How do I know if a dividend is eligible?
The paying corporation has to designate it in writing. Your T5 slip shows the taxable amount and credit. The CRA treats undesignated dividends as non-eligible.
What is the federal dividend tax credit?
6/11 of the gross-up for eligible dividends and 9/13 for non-eligible dividends, per the CRA.
Do I pay instalments on dividend income?
Possibly. If your net tax owing passes $3,000 ($1,800 in Quebec) and did in 2025 or 2024 too, the CRA's rules can require instalments.
Do provincial dividend credits differ?
Yes, each province sets its own. We couldn't confirm the 2026 provincial rates on official forms, so our provincial figures are estimates.
- RRSP, TFSA, FHSA and retirement income in Canada
How the RRSP, TFSA and FHSA differ, the 2026 limits, what happens when you withdraw, and where CPP and OAS fit into your retirement income
- Ontario income tax and sales tax in 2026
How Ontario income tax works in 2026: the five brackets, the surtax and health premium, the 13% HST, and the calculators that switch to Ontario