Canadian dividends get preferential tax treatment via the gross-up and dividend tax credit (DTC) system. The result is that dividends from Canadian public companies are taxed at lower effective rates than interest or salary income.
Eligible vs non-eligible
- Eligible dividends: from public corporations or CCPCs paying from their General Rate Income Pool (GRIP). 38% gross-up, 15.02% federal DTC.
- Non-eligible dividends: typically from small-business income. 15% gross-up, 9.03% federal DTC.
How the gross-up works
You report the dividend amount plus the gross-up on your return. You then claim the DTC as a non-refundable tax credit to offset the inflated tax. Net result: dividends are taxed at lower effective rates than salary.