Eligible vs ineligible dividends — calculate your net dividend tax
Canadian dividends inside a TFSA are completely tax-free. Start with KOHO and get a $100 bonus with code 45ET55JSYA.
Claim $100 Bonus →Canada uses a unique dividend integration system to avoid double-taxation. When a Canadian corporation pays dividends, it has already paid corporate tax on those profits. To compensate individual investors, CRA requires you to "gross up" the dividend (add an artificial amount), calculate tax on the grossed-up amount, then subtract a dividend tax credit (DTC). The result: dividends are taxed more favourably than regular income.
Eligible dividends are paid by public corporations (TSX-listed companies, REITs) or private corporations that paid full corporate tax. The gross-up is 38% — a $1,000 dividend becomes $1,380 of taxable income, but the DTC of 15.02% (federal) and provincial credits bring your net tax well below that. At moderate income levels, eligible dividends can be received tax-free or even at negative tax rates.
Ineligible dividends come from Canadian-Controlled Private Corporations (CCPCs) that paid tax at the small business rate. The gross-up is 15%, and the federal DTC is 9.03%. These are taxed at higher effective rates than eligible dividends but still lower than ordinary employment income.
Foreign dividends (from US or international stocks) receive no Canadian dividend tax credit — they're taxed as regular income at your full marginal rate. Foreign withholding taxes (typically 15% from the US under treaty) can be claimed as a foreign tax credit. Hold foreign dividend stocks in your RRSP where possible to defer both Canadian tax and recover US withholding without limit.