Dividend Tax Canada Explained 2025

Canadian dividends are taxed differently than employment income — often at lower effective rates. Here's how the gross-up and dividend tax credit system works.

Two Types of Canadian Dividends

Type	Source	Gross-Up Rate	Federal DTC
Eligible dividends	Public companies, large CCPCs	38%	15.02% of grossed-up amount
Non-eligible (ordinary) dividends	Small private companies (CCPCs)	15%	9.03% of grossed-up amount

How the Dividend Gross-Up and Tax Credit Works

Canada's dividend taxation system attempts to avoid double-taxation — the corporation already paid corporate tax before distributing dividends to shareholders. The gross-up and dividend tax credit (DTC) mechanism approximates this. Here's how it works for eligible dividends:

• Step 1: Receive $1,000 in eligible dividends
• Step 2: Gross up by 38% → $1,380 taxable dividend income reported on return
• Step 3: Calculate tax on $1,380 at your marginal rate
• Step 4: Apply the federal dividend tax credit of 15.02% of $1,380 = $207.28
• Step 5: Provincial DTC also applies (varies by province)

Effective Tax Rate on Eligible Dividends

Because of the gross-up and DTC, eligible dividends are taxed at significantly lower effective rates than employment income. In many provinces, individuals with income below roughly $50,000–$60,000 pay zero or negative effective tax on eligible dividends. Higher earners still benefit from reduced rates compared to regular income.

Province	Top Marginal Rate on Employment Income	Top Marginal Rate on Eligible Dividends
Ontario	53.53%	39.34%
British Columbia	53.50%	36.54%
Alberta	48.00%	34.31%
Quebec	53.31%	40.11%

Your T5 Slip Explained

If you receive dividends in a non-registered account, your financial institution sends a T5 slip (Statement of Investment Income) showing:

• Box 24: Actual amount of eligible dividends received
• Box 25: Taxable amount of eligible dividends (after gross-up — this goes on your return)
• Box 26: Dividend tax credit for eligible dividends
• Box 10: Actual amount of non-eligible dividends
• Box 11: Taxable amount of non-eligible dividends
• Box 12: Dividend tax credit for non-eligible dividends

Use the taxable amounts (boxes 25 and 11) on your return — your software handles the DTC automatically.

Foreign Dividends

Dividends from foreign companies (e.g., US stocks) are taxed as regular income — no gross-up, no Canadian dividend tax credit. US dividends typically have 15% withholding tax applied (per the Canada-US tax treaty). You can claim a foreign tax credit on your Canadian return to avoid double taxation. Hold US dividend stocks inside an RRSP when possible — the treaty exempts RRSP accounts from US withholding tax.

Minimizing Dividend Tax in Canada

• Hold Canadian dividend stocks in TFSA: Dividends grow and can be withdrawn completely tax-free
• Hold foreign dividend stocks in RRSP: Avoid withholding tax via treaty exemption
• Income splitting: Attribute dividends to lower-income family members (attribution rules apply)
• Consider your total income: Eligible dividends are most tax-efficient at lower income levels