What is the dividend gross-up?

Canadian dividends are paid from corporate after-tax profit, so the tax system grosses them up to approximate the pre-tax corporate income. Eligible dividends are grossed up by 38% and non-eligible by 15%. You are taxed on this grossed-up amount, but then receive a dividend tax credit to avoid double taxation.

What is the dividend tax credit (DTC)?

The DTC is a credit that offsets the tax you would otherwise pay on the grossed-up dividend, compensating for tax the corporation already paid. The federal credit is about 15.02% of the grossed-up eligible dividend (9.03% for non-eligible), and each province adds its own credit on top.

What is the difference between eligible and non-eligible dividends?

Eligible dividends generally come from large public corporations taxed at the general corporate rate, get a larger gross-up and credit, and are taxed more lightly in your hands. Non-eligible dividends usually come from a Canadian-controlled private corporation paying the small-business rate, with a smaller gross-up and credit.

Why can dividend tax be lower than tax on salary?

Because of the dividend tax credit, the integration of corporate and personal tax often makes Canadian-eligible dividends taxed at a lower effective rate than ordinary employment income at the same marginal bracket. For low-income earners the effective rate on eligible dividends can even be negative on a marginal basis.

Does this apply to foreign dividends?

No. The gross-up and dividend tax credit apply only to dividends from taxable Canadian corporations. Dividends from foreign companies are taxed as ordinary income with no gross-up or DTC, though you may claim a foreign tax credit for tax withheld abroad. Use this tool for Canadian dividends only.

Canada Dividend Tax Calculator

A Canada dividend tax calculator that handles the country’s distinctive gross-up and dividend tax credit mechanism. Canadian dividends are not taxed like ordinary income: the cash you receive is first grossed up to estimate the pre-tax corporate profit it came from, taxed at your marginal rate, and then a dividend tax credit is applied to offset tax the corporation already paid. This tool runs all three steps for both eligible and non-eligible dividends and shows your real net income.

How it works

The system exists to avoid double taxation. A corporation pays tax on its profits, then distributes the rest as a dividend; without an adjustment, you would be taxed again on that already-taxed money. The gross-up and credit “integrate” the two so the total tax roughly equals what you would have paid on the income directly.

grossedUp   = dividend × (1 + grossUpRate)      eligible 38%, non-eligible 15%
taxBefore   = grossedUp × marginalRate
dtc         = grossedUp × (federalCreditRate + provincialCreditRate)
taxPayable  = max(0, taxBefore − dtc)
netDividend = dividend − taxPayable

For eligible dividends the gross-up is 38% and the federal credit is about 15.02% of the grossed-up amount; for non-eligible dividends the gross-up is 15% and the federal credit about 9.03%. The provincial credit is added on top and varies by province.

Example and notes

Suppose you receive an $10,000 eligible dividend with a 40% combined marginal rate and a provincial credit of 10%. The grossed-up amount is $13,800; tax before credits is $5,520; the dividend tax credit (15.02% + 10% of $13,800) is about $3,453; so tax payable is roughly $2,067 and your net dividend is about $7,933 — an effective rate near 21%, well below the 40% headline.

Notes: the gross-up rates are set in federal legislation and rarely change; the federal credit rates follow them. Provincial credits differ widely, so enter your province’s rate for accuracy. This tool is for Canadian dividends only — foreign dividends get no gross-up or DTC. Everything is computed in your browser.

Canada Dividend Tax Calculator

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How it works

Example and notes