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Find out how dividend tax credits work, why governments offer them and what it means to “gross up” your dividend income.
Dividend tax credits reduce the taxes you pay on income from certain types of dividends. Companies pay dividends from earnings after tax. Because they have already paid tax on this money, dividend tax credits adjust the taxes you pay, to avoid double taxation.
The federal government and each province and territory offer dividend tax credits. The rates vary depending on whether the dividends are paid to you by a public company—called eligible dividends—or by a Canadian-controlled private corporation (CCPC), called other-than-eligible, non-eligible or ordinary dividends.
To calculate the amount of a dividend tax credit, you first “gross up” your dividend income, reporting a higher number than the actual amount you received. You are taxed on this higher value. You then claim a credit to offset this.
Example: “In 2022, Elaine received $100 of eligible dividends from public companies. On her tax return, she first added 38% ($100 x 1.38) to ‘gross up’ this number, reporting $138. Then she claimed a tax credit for 15.02% of this number, or $15.87.”
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