Canadian dividend tax credit, worked example: for eligible dividends, the Canada Revenue Agency grosses up the cash dividend by 38% and then gives a federal credit of 15.0198% of that grossed-up amount, according to the CRA's T5 Guide for 2026. So $1,000 of eligible dividends is reported as $1,380 of taxable income and earns a federal credit of $207.27. At an illustrative 26% federal rate, that cuts the federal tax on the $1,000 from $260 for the same amount of interest to about $152. The credit applies only to dividends from taxable Canadian corporations, held outside a TFSA or RRSP, and each province adds its own credit on top.

The rates, from the CRA

The CRA's T5 Guide: Return of Investment Income 2026 sets out two categories:

• Eligible dividends, generally paid by large public corporations: the taxable amount is the dividend plus a 38% gross-up, for dividends paid in 2012 or later. The federal dividend tax credit is 15.0198% of the taxable amount, which equals 6/11 of the gross-up.
• Other than eligible dividends, generally from small private corporations taxed at the small business rate: the gross-up is 15% and the federal credit is 9.0301% of the taxable amount, which equals 9/13 of the gross-up, for dividends paid in 2019 or later.

Your T5 slip shows the actual dividend, the taxable amount and the credit, in boxes 24 to 26 for eligible dividends and boxes 10 to 12 for others. The taxable amount goes on line 12000 of your return, and the federal credit on line 40425.

Why the gross-up exists

A dividend is paid out of profit the corporation has already paid tax on. The gross-up and credit are meant to account for that corporate tax, so that income earned through a corporation and paid out as a dividend is taxed roughly as if you had earned it directly. The gross-up adds back an estimate of the pre-tax profit; the credit gives back an estimate of the corporate tax already paid.

The effect for most investors is that eligible dividends are taxed at a lower rate than interest or employment income at the same marginal rate.

The worked example: $1,000 of eligible dividends

Using an illustrative federal marginal rate of 26%, with provincial tax left out:

• Cash dividend: $1,000.
• Gross-up at 38%: $1,000 × 1.38 = $1,380 taxable amount.
• Federal tax before the credit: $1,380 × 26% = $358.80.
• Federal dividend tax credit: $1,380 × 15.0198% = $207.27.
• Federal tax after the credit: $358.80 − $207.27 = $151.53.

That is about 15.2% of the cash dividend, against $260, or 26%, on $1,000 of interest at the same rate.

The same $1,000 as an other-than-eligible dividend

• Gross-up at 15%: $1,000 × 1.15 = $1,150 taxable amount.
• Federal tax before the credit: $1,150 × 26% = $299.00.
• Federal credit: $1,150 × 9.0301% = $103.85.
• Federal tax after the credit: $299.00 − $103.85 = $195.15, about 19.5% of the cash dividend.

Other-than-eligible dividends get less relief because the corporation paying them generally paid less corporate tax.

At a low tax rate, the credit can wipe out the tax

At an illustrative federal rate of 15%, $1,000 of eligible dividends produces federal tax before the credit of $1,380 × 15% = $207.00, slightly less than the $207.27 credit. The federal tax on the dividend falls to zero.

The federal credit is non-refundable: it can reduce tax you owe, including tax on your other income, but it is not paid out as a refund if there is nothing left to offset. That is why eligible dividends can be very tax-efficient for retirees with modest incomes.

The catch: the gross-up raises your income

Because the taxable amount is larger than the cash you received, the gross-up increases your net income for tax purposes. Income-tested benefits and credits are based on that higher figure. For a retiree near the income threshold for the Old Age Security recovery tax, $1,000 of eligible dividends counts as $1,380 of income for that test. A large dividend portfolio in a non-registered account can therefore cost more than the dividend tax rate alone suggests.

Reading your T5 slip

Your broker or the paying company reports Canadian dividends on a T5 slip, and the slip already does the arithmetic. For $1,000 of eligible dividends, it would show:

• Box 24, actual amount of eligible dividends: $1,000.00.
• Box 25, taxable amount of eligible dividends: $1,380.00.
• Box 26, dividend tax credit for eligible dividends: $207.27.

For other-than-eligible dividends the same three figures appear in boxes 10, 11 and 12. You report the taxable amounts, not the cash amounts, on your return, and the credit amounts go toward line 40425. If you hold Canadian dividend stocks in more than one non-registered account, add the slips together.

What does not qualify

• Foreign dividends, including those from U.S. companies, do not get the dividend tax credit. They are taxed as ordinary income, and U.S. tax is usually withheld at source; our guide to U.S. withholding tax in a TFSA covers how that works in each account type.
• Dividends inside a TFSA are not taxed at all, so the credit does not apply and is not needed.
• Dividends inside an RRSP or RRIF are not taxed when received, but withdrawals are taxed as ordinary income. The credit is lost, which is a reason some investors hold Canadian dividend stocks in non-registered accounts and interest-paying investments inside registered ones.

Provincial credits

Every province and territory has its own dividend tax credit, applied to the same grossed-up amount, at its own rate. Combined with the federal credit, it sets the total tax on your dividends. The rates differ enough across provinces that the same dividend can be taxed quite differently in, say, Alberta and Quebec, so use your province's current rate from its tax forms or the CRA's provincial worksheets when you run your own numbers.

Putting it to use

Canada's large banks, insurers, utilities and pipeline companies generally pay eligible dividends, which is part of why they are popular in non-registered accounts. For the yields they pay, see our comparison of Canadian bank dividend yields. More income coverage is in Dividends and on the Wall Street Conservative front page.

Tax rules change and personal situations differ; check the CRA's current guide or a tax professional before acting on any figure here.

FAQ

How is the Canadian dividend tax credit calculated?

For eligible dividends, multiply the cash dividend by 1.38 to get the taxable amount, then take 15.0198% of that as the federal credit. $1,000 of eligible dividends gives a taxable amount of $1,380 and a federal credit of $207.27.

What is the difference between eligible and other-than-eligible dividends?

Eligible dividends generally come from corporations taxed at the general corporate rate and get a 38% gross-up and a 15.0198% federal credit. Other-than-eligible dividends, typically from small private corporations, get a 15% gross-up and a 9.0301% credit.

Do U.S. dividends qualify for the dividend tax credit?

No. The credit applies to dividends from taxable Canadian corporations. U.S. dividends are taxed as ordinary income in Canada, with a foreign tax credit generally available for U.S. tax withheld.

Is the dividend tax credit refundable?

No. It can reduce the tax you owe but is not paid out as a refund if your tax is already zero.