How the Canadian dividend tax credit works

What is the dividend tax credit?

When a Canadian corporation pays you a taxable dividend, the Canada Revenue Agency (CRA) doesn’t tax the cash amount directly. Instead, the dividend goes through two steps on your return. First it is grossed up: you report more than you actually received. Then you claim a dividend tax credit that reduces your tax. The net effect is that, at many income levels, a dollar of Canadian dividends is taxed more lightly than a dollar of interest.

The credit only applies to dividends from corporations resident in Canada. Dividends from foreign companies, including US companies, don’t get the gross-up or the credit; they’re taxed like interest. See foreign tax credit on US dividends.

It also matters which account the dividend lands in. The gross-up and credit come into play for dividends you report on your return, which generally means dividends in a non-registered account. There is nothing to apply for separately: the credit is worked out on the return, as long as each amount is entered as the right dividend type.

Step by step: gross-up, then credit

1. Identify the type. Your slip separates eligible dividends from other-than-eligible (non-eligible) dividends. The type decides the rates. See eligible vs non-eligible dividends.
2. Gross it up. Multiply eligible dividends by 138% and non-eligible dividends by 115%. The result is the taxable amount.
3. Add the taxable amount to your income. It is taxed at your regular federal and provincial rates, together with your other income.
4. Claim the federal credit. 15.0198% of the grossed-up eligible amount, or 9.0301% of the grossed-up non-eligible amount (line 40425).
5. Claim the provincial or territorial credit. Each jurisdiction sets its own rates, also applied to the grossed-up amount.
6. Stop at zero. The credits can reduce your tax payable, but because they are non-refundable, any unused amount isn’t paid out to you.

Federal rates at a glance

These are the rates on the CRA’s federal worksheet for the 2025 tax year (form 5000-D1), the latest version published when we checked on October 31, 2026. Our 2026 estimates use the same rates.

Provinces and territories add their own credit

Your province or territory taxes the same grossed-up amount and then gives its own dividend tax credit, also as a percentage of the grossed-up amount. The rates differ quite a bit from one jurisdiction to the next, and the gap between eligible and non-eligible rates differs too. Ontario’s credit, for example, is 10% of the grossed-up amount for eligible dividends.

We list every province and territory, with the year each rate comes from, on the dividend tax by province page. Quebec residents claim a separate Quebec dividend tax credit on their Revenu Québec return (line 415).

Worked example: $1,000 eligible dividend in Ontario

A hypothetical Ontario resident has $90,000 of other income (salary, pension or interest) in 2026 and receives a $1,000 eligible dividend in a non-registered account. Here is the extra tax the dividend causes, from our tax engine.

Why does the dividend tax credit exist?

A dividend is paid out of profits the corporation has already paid tax on. Without some adjustment, the same income would be taxed once inside the company and again in full in your hands. The gross-up and credit are the system’s way of recognizing the corporate tax already paid. Tax specialists call this idea integration.

That is also why there are two kinds of dividends. Corporations pay tax at different rates, and the eligible and non-eligible rules track whether the profits behind a dividend were taxed at the general corporate rate or at a lower rate. The eligible vs non-eligible guide explains the split.

Three side effects worth knowing

• Your net income goes up by more than the cash. The grossed-up amount is what counts in net income, which matters for income-tested benefits like the OAS recovery tax. See dividends and the OAS clawback.
• The credit applies to dividends you report. That generally means dividends earned in a non-registered (taxable) account, including dividends reinvested through a DRIP.
• Rates can change. Federal and provincial budgets can adjust gross-ups and credit rates, so check the year a rate applies to before relying on it.