Canadian Dividend Tax Credit
How the dividend gross-up and tax credit work in 2026, eligible vs non-eligible dividends, an Ontario comparison with interest and gains, and top rates by province.
The short version
- Dividends from Canadian companies are "grossed up" on your return (by 38% for eligible dividends, 15% for non-eligible ones), then a dividend tax credit takes most of that tax back.
- The result: eligible dividends are taxed less than almost any other income at low and middle incomes. In Ontario, $10,000 of eligible dividends on top of an $80,000 salary adds about $640 of tax; the same in interest adds about $2,970.
- Someone with only eligible dividends can receive about $50,000 a year in Ontario and pay roughly $600 of income tax.
- Foreign dividends, including U.S. stocks, get no dividend tax credit. They're taxed like interest, with a foreign tax credit for withholding.
- The catch: the grossed-up amount counts as income for the OAS clawback and income-tested benefits, so dividends can cost seniors more than they appear to.
Canadian Dividend Tax Credit
The dividend tax credit is the tax system's way of apologizing for taxing the same profit twice. A Canadian company pays corporate tax on its profit, then pays you a dividend out of what's left. To avoid taxing it fully again, your return pretends you received the pre-tax profit (the gross-up), taxes that, then credits back roughly the corporate tax already paid. The arithmetic looks odd. The outcome is simple: Canadian dividends are taxed lightly, especially if your other income is modest.
How the Gross-Up and Credit Work (2026)
| Eligible dividends | Non-eligible dividends | |
|---|---|---|
| Usually from | Public companies, large private ones | Small private corporations, like your own company |
| Gross-up | 38% | 15% |
| $1,000 received, reported as | $1,380 | $1,150 |
| Federal dividend tax credit | 15.0198% of the grossed-up amount | 9.0301% of the grossed-up amount |
| Provincial credit | Varies by province | Varies by province |
| Slip | T5 box 24/25/26, or T3 | T5 box 10/11/12 |
Slips explained: T5 slips and T3 slips. Paying yourself dividends from your own company: dividends from a corporation and salary vs dividends.
How are your dividends taxed?
Tell the assistant your province, other income, and how much you get in eligible, non-eligible and foreign dividends. It works out the tax, the effect on OAS and benefits, and which account each holding belongs in.
$10,000 More Income, Ontario, on an $80,000 Salary
| Type of income | Extra tax |
|---|---|
| Eligible Canadian dividends | about $640 |
| Capital gains | about $1,480 |
| Non-eligible dividends | about $2,030 |
| Interest, or foreign dividends | about $2,970 |
From our 2026 rules engine with basic credits. At a $200,000 salary, the same $10,000 of eligible dividends costs about $3,360 in Ontario, and non-eligible about $4,320: still less than interest, but the gap narrows. Capital gains rules: stock taxes.
Top Rates on Dividends by Province (2026)
| Province | Eligible | Non-eligible |
|---|---|---|
| Ontario | 39.34% | 47.74% |
| British Columbia | 36.54% | 48.89% |
| Alberta | 34.31% | 42.31% |
| Saskatchewan | 29.64% | 41.82% |
| Manitoba | 37.78% | 46.67% |
| Nova Scotia | 41.58% | 48.28% |
| New Brunswick | 32.40% | 46.83% |
| Newfoundland and Labrador | 46.20% | 48.96% |
Combined federal and provincial rates on the actual dividend at the highest income. Other provinces and lower brackets: provincial taxes.
Where to Hold Dividend Stocks
- Canadian dividend payers in a taxable account get the credit. In an RRSP or TFSA, the credit is wasted, though growth is sheltered.
- U.S. dividend payers in an RRSP avoid the 15% U.S. withholding under the treaty; in a TFSA they don't. See U.S. stocks and foreign tax credits.
- Seniors near the OAS clawback should count the grossed-up amount: $10,000 of eligible dividends adds $13,800 to net income; see the OAS clawback.
- Low-income years: someone with no other income can receive a lot of eligible dividends almost tax-free, but the gross-up can still reduce benefits like GIS; see benefits for seniors.
Dividend Tax Credit Questions
How does the dividend tax credit work?
You report a grossed-up dividend (38% more for eligible dividends, 15% more for non-eligible), and then claim federal and provincial dividend tax credits that reduce your tax. The result is a lower tax rate than on interest or salary.
What is the difference between eligible and non-eligible dividends?
Eligible dividends are paid from income taxed at the general corporate rate, usually by public companies, and get a bigger gross-up and credit. Non-eligible dividends come from income taxed at the small business rate, usually from private corporations.
Do U.S. dividends get the dividend tax credit?
No. Foreign dividends are fully taxable like interest. U.S. tax withheld can usually be claimed as a foreign tax credit.
How much can I earn in dividends tax-free in Canada?
It depends on the province. In Ontario in 2026, someone with only eligible dividends can receive about $50,000 and pay roughly $600 of income tax. Other credits change the amount.
Do dividends affect OAS?
Yes. The grossed-up amount, not the cash received, is included in net income, so dividends can trigger the OAS clawback sooner than other income of the same cash amount.
Sources: CRA, Line 40425, Federal dividend tax credit; TaxTips.ca, 2026 federal rates; Goald, Canadian tax tables 2026. Checked October 2026. Ontario examples use our 2026 rules engine. Top provincial rates come from a secondary source and were not independently recalculated for every province. Quebec is not included.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.