Eligible vs non-eligible dividends: what’s the difference?

How does the CRA define an eligible dividend?

Under the CRA’s rules, an eligible dividend is a taxable dividend paid by a corporation resident in Canada to a person resident in Canada that the corporation designates as eligible. A taxable dividend that isn’t designated is a non-eligible dividend, sometimes called an “other than eligible” or ordinary dividend.

So the label isn’t something you choose or work out yourself. The company decides, within limits set by tax law, and tells shareholders. Your job is to report each type correctly.

The different rates follow from how the company itself was taxed. Profits taxed at the general corporate rate have already carried more corporate tax, so dividends paid from them get the larger gross-up and the larger credit. Profits taxed at a lower rate carried less, so the dividends paid from them get a smaller credit. The dividend tax credit page explains the mechanics step by step.

Why some companies can pay eligible dividends and others can’t

The CRA says a corporation’s capacity to pay eligible dividends depends mostly on its status. At a plain level, it works like this:

• Canadian-controlled private corporations (CCPCs) pay eligible dividends out of a pool called the general rate income pool (GRIP). GRIP builds up from income taxed at the general corporate rate. Income taxed at the lower small-business rate doesn’t go into GRIP, so dividends from it are generally non-eligible.
• Public corporations and other non-CCPCs track a low rate income pool (LRIP) instead. They can generally designate dividends as eligible unless a payment exceeds what that pool allows.
• In practice, dividends from most Canadian public companies are designated eligible, while dividends from a small private business are often non-eligible. That is a general pattern, not a rule for any particular company.

How can you tell which type you received?

For shares in a non-registered account, your T5 slip shows eligible dividends and other-than-eligible dividends separately. Tax software applies the right gross-up and credit once each amount is entered in the matching box.

A company’s dividend announcement or investor-relations page may state whether a dividend is designated eligible. The reading a dividend announcement guide shows where to look.

The two sets of rates side by side

Federal rates are from the CRA’s 2025 worksheet, the latest published on October 31, 2026. Ontario’s 2026 rates are confirmed by the province, and its 2026 Budget lowers the non-eligible credit from January 1, 2027. Other provinces’ rates are on the dividend tax by province page.

Worked example: $1,000 of each at two Ontario incomes

Two hypothetical Ontario residents each receive $1,000 in a non-registered account in 2026. One has $50,000 of other income; the other has $120,000. Here is the extra tax for each type of income, from our tax engine.

What the comparison shows

In both cases, eligible dividends cost less tax than non-eligible dividends, and both cost less than interest. The gap changes with income: the credits are fixed percentages, but the tax on the grossed-up amount rises as your bracket rises. That is why a single “dividend tax rate” doesn’t exist; it depends on your province, your other income and the type of dividend.

The non-eligible numbers for Ontario will change from 2027, when the provincial credit drops by one percentage point. Our after-tax dividend calculator lets you test other provinces and income levels.

The size of the gap between the two types also moves around. In this example, a non-eligible dividend cost $163.27 more per $1,000 than an eligible one at $50,000 of other income, and $107.24 more at $120,000. So the label can matter at any income level, not only at the top.

What changes for Ontario non-eligible dividends in 2027?

Ontario’s 2026 Budget lowers the provincial credit on non-eligible dividends from 2.9863% to 1.9863% of the grossed-up amount, starting January 1, 2027. The eligible rate stays at 10%. The arithmetic on a $1,000 non-eligible dividend is simple: