How dividend tax works in Canada
A Canadian-resident individual normally reports taxable dividends from Canadian corporations using a gross-up and dividend tax credit mechanism. The system recognises corporate tax already paid, but the final personal tax depends on whether the dividend is eligible or non-eligible and on the shareholder's province.
For federal purposes, an eligible dividend is grossed up by 38% and receives the enhanced federal dividend tax credit. A non-eligible dividend is grossed up by 15% and receives the ordinary federal credit. Provincial gross-ups and credits can differ.
A dividend from a Canadian corporation has usually been paid out of after-corporate-tax profits. The corporate and personal layers are intended to be integrated for Canadian shareholders, but integration is not a promise of a zero-tax result and can vary by province and income level.
A Canadian corporation receiving a dividend from another Canadian corporation can often deduct the intercorporate dividend, but Part IV tax, anti-avoidance rules, connected-corporation status and dividend-refund mechanics may still apply.
Dividends paid to a non-resident are generally subject to 25% Part XIII withholding under domestic law. A tax treaty, beneficial ownership and the recipient's status can reduce the rate, commonly to a lower portfolio or parent-company rate.
Tax rates at a glance
- Dividend tax
- Integrated
- Eligible dividend gross-up
- 38%Federal
- Non-eligible dividend gross-up
- 15%Federal
- Resident dividend tax
- Marginal rates after credits
- Non-resident domestic withholding
- 25%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
InvestorsShareholdersFoundersHolding companiesCross-border groups
Watch out for
- The 38% and 15% figures are gross-up percentages, not the final tax rates. The dividend is first increased for the tax calculation and then reduced by federal and provincial credits.
- Eligible versus non-eligible status matters. A CCPC that distributes income taxed at the small-business rate will generally use the non-eligible stream, while general-rate corporate income may support eligible dividends subject to the detailed rules.
- A treaty rate is not automatic. The Canadian payer needs reliable residence and beneficial-ownership information, and a parent-company rate may require a shareholding threshold and other treaty conditions.
- Foreign dividends received by a Canadian resident are generally included in worldwide income but do not qualify for the Canadian dividend tax credit. Foreign withholding and the foreign tax credit limitation need a separate calculation.
- A founder comparing salary and dividends must include corporate tax, personal tax, CPP or QPP, EI, payroll deductions, refundable dividend-tax treatment and the tax residence of the recipient.
Frequently asked questions
How are Canadian dividends taxed?
Canadian-resident individuals generally report taxable dividends after applying the eligible or non-eligible gross-up and claim the related federal and provincial dividend tax credits. The final personal tax depends on the shareholder's province and marginal income.
What is Canada's dividend withholding tax for non-residents?
The domestic Part XIII rate is generally 25% on taxable dividends paid to non-residents. A bilateral tax treaty can reduce the rate or, in limited cases, provide an exemption when the recipient qualifies.
Are dividends from a Canadian company tax-free to another Canadian company?
Often a Canadian corporation can deduct dividends received from another Canadian corporation, but Part IV tax, connected-corporation rules, anti-avoidance provisions and dividend-refund mechanics can still create tax. It is not an unconditional exemption.