Dividends from Canada
There are two types of dividends-”eligible dividends” and “other than eligible dividends”, that you may receive from taxable Canadian corporations with different gross-up factors and calculations for the corresponding dividend tax credits.
- “Eligible dividends” (generally those received from Canadian public corporations on the stock exchanges) are grossed-up by 38% and a federal dividend tax credit is allowed which is calculated as 6/11 of the gross-up (or 15.0198% of the grossed-up dividends).
- A Canadian Controlled Private Corporation (CCPC) can also pay eligible dividends up to the amount of General Rate Income Pool (GRIP) balance that it has at its fiscal year end. A CCPC will have a GRIP balance if it has paid income tax on part of its taxable income at the higher rate. The GRIP balance is generally the taxable income that has not benefitted from the small business deduction or any other special tax rate and carries forward if not used in the year. To be valid, corporations are required to designate each eligible dividend that they pay, before or at the time of payment, and notify shareholders in writing that the dividend is eligible. Notification could be made through letters to shareholders, on the cheque stubs, or in cases where all the shareholders are also directors, a notation in the corporate minutes.
- For example, $100 “eligible dividend” received will be grossed up to $138 taxable dividend and the dividend tax credit will be $20.73.
- Dividends “other than eligible dividends” (usually from owner-managed small corporations) are grossed-up by 15% and a federal dividend tax credit is allowed which is calculated as 9/13 of the gross-up (or 9.0301% of the grossed-up dividends).
- For example, $100 “other than eligible dividend” received will be grossed up to $115 taxable dividend and the dividend tax credit will be $10.38. The “eligible dividend” is less taxing.
The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.