How are dividends taxed in Canada?

You report more than you received. A $20,000 eligible dividend is grossed up 38.0% to $27,600, taxed at your normal rates, and then reduced by a federal credit of 15.02% of the grossed-up amount plus 10.0% in Ontario. The net cost on $60,000 of other income is $1,278, or 6.4%.

Why do I have to report more dividend income than I received?

The gross-up estimates the pre-tax corporate profit your dividend was paid out of. The dividend tax credit then refunds the corporate tax already paid on it. Together they are meant to make earning through a company and earning directly come out the same — the Canadian system calls it integration.

Are dividends tax-free in Canada?

Eligible dividends can be, at modest incomes. In Ontario a $20,000 eligible dividend costs nothing in tax while your other income stays below about $44,675, and a little below that the credits exceed the tax so it reduces the bill on your other income. Above that it is taxed, and the advantage over salary narrows as income rises.

What is the difference between eligible and other-than-eligible dividends?

Which corporate rate the profit was taxed at. Eligible dividends come from income taxed at the general corporate rate and carry a bigger gross-up and credit; other-than-eligible come from small-business-rate income and carry less. On $20,000 at $60,000 in Ontario that is $1,278 against $4,056.

Is it better to pay myself dividends or salary?

On income tax alone, dividends usually win in the middle of the range and win less at the top, because the credit is a fixed percentage while the tax it offsets rises. But salary carries CPP and dividends do not — which saves money now and forgoes pension later — and salary creates RRSP room while dividends do not. The tax comparison is the easy part and rarely the deciding one.

Do dividends affect my OAS?

Yes, and by more than you received. The OAS recovery tax is measured on net income, which includes the grossed-up dividend — $27,600 for a $20,000 dividend. That is the classic trap for retirees living on dividend income, and no clawback is calculated on this page.

Are these 2026 rates?

The gross-ups, the federal credit fractions and the income tax brackets are 2026. The provincial dividend tax credit percentages are from the 2025 editions of each province's Form 428 worksheet — the most recent published, since 2026 forms are not released until 2027. Those percentages are set in legislation rather than indexed, so they carry forward unless a provincial budget changes them.

2026 brackets · gross-up and both credits · 13 jurisdictions

Canadian dividend tax calculator

The only tax in Canada where you declare more than you received: a $20,000 eligible dividend enters your return as $27,600. In exchange, below about $44,675 of other income in Ontario it costs nothing at all.

Written and edited by Pablo Ruiz QuinteroSources checked September 1, 2026Gross-ups and federal credit from the CRA; provincial credits from each Form 428 worksheet, read 2026-09-08

Brackets 2026Where OntarioCredit ON428 (5006-D) (2025)

Dividend received

Your other income

Eligible dividends come from profit taxed at the general corporate rate — public companies pay these. Bigger gross-up, bigger credit.

Province or territory

Tax on the dividend

$1,278

6.4% of what you received · $18,722 kept

Grossed up, taxed, credited back
Dividend received	$20,000
Gross-up you never received	+ $7,600
Declared as income	$27,600
Tax on it	$8,183
Federal dividend tax credit	− $4,145
Ontario dividend tax credit	− $2,760
Net tax	$1,278

The same $20,000 as salary would cost $5,657 in income tax — $4,379 more. Salary also carries CPP and EI; a dividend carries neither, and earns no CPP either.

Every income-tested benefit — the OAS recovery tax, the age amount, the GST credit — is measured on the $27,600, not the $20,000. None of those clawbacks is calculated here.

You declare $27,600 of income for a $20,000 dividend

This is the only place in Canadian tax where you report more money than you received, and it throws people every single year.

A $20,000 eligible dividend is grossed up by 38.0% and enters your return as $27,600. You never saw $7,600 of that. Other-than-eligible dividends are grossed up by 15.0% instead.

Then the law gives it back. A federal dividend tax credit of 15.02% of the grossed-up amount — legislated as six elevenths of the gross-up — plus a provincial credit of 10.0% in Ontario. Together, $6,905 straight off the tax.

The point of the exercise is integration: the corporation already paid tax on that profit, so the gross-up estimates what the profit was before corporate tax and the credit refunds what the corporation paid. Done right, earning through a company and earning directly come out level. It is elegant, it is invisible, and it makes dividends look like a much better deal than salary — which, at some incomes, they genuinely are.

Below $44,675 of other income, a $20,000 eligible dividend is tax-free in Ontario

Not "low-taxed". Free. And a little below that, better than free — the credits exceed the tax the dividend generates, so it reduces the tax on your other income.

On $30,000 of other income in Ontario, $20,000 of eligible dividends changes your tax by $-1,141 — an effective rate of -5.7%. The same money as salary would cost $3,521.

On $60,000: $1,278, or 6.4%, against $5,657 as salary.

On $200,000: $6,534, or 32.7%, against $9,653.

Notice how the advantage narrows. The dividend credit is a fixed percentage, so it is worth the same at every income; the tax it offsets rises with your bracket. Dividends win most decisively in the middle, not at the top — which is the opposite of how they are usually discussed.

And a caveat on the comparison above: it is income tax only. Salary also carries CPP and EI; a dividend carries neither. For an incorporated owner deciding how to pay themselves, that is worth up to another $4,230 a year — and it also means no CPP is being earned, which is a pension forgone rather than a cost avoided.

Eligible and other-than-eligible are 3.2 times apart

Two words on a T5 slip, and on $20,000 at $60,000 of other income in Ontario they are the difference between $1,278 and $4,056 — 6.4% against 20.3%.

Eligible dividends come from profit that was taxed at the corporation's general rate. Because the company paid a lot, you get a large gross-up and a large credit. Public companies pay these.

Other-than-eligible dividends come from profit taxed at the small business rate. The company paid little, so you pay more: a smaller gross-up (15.0%), a smaller federal credit (9.03%) and a much smaller provincial one — 2.99% in Ontario against 10.0%.

Which matters most to owners of small corporations, because their dividends are almost always the second kind. The famous "dividends beat salary" arithmetic is usually run on eligible dividends and then applied to a CCPC paying non-eligible ones, where the answer is different and often reverses.

And the grossed-up figure counts against everything else you are entitled to

Here is the cost nobody puts in a calculator, this one included. The gross-up raises your net income, and net income is what every income-tested benefit in Canada is measured against.

The OAS recovery tax starts clawing back Old Age Security above a threshold measured on net income. The age amount tapers on net income. So do the GST credit, provincial drug and property tax benefits, and the guaranteed income supplement. All of them see $27,600 where you received $20,000.

For a retiree living on dividends this is the whole story, and it runs the opposite way to the credit. The dividend tax credit reduces the tax you pay; the gross-up increases the income everyone else measures you by. A retiree can be better off on tax and worse off in total.

None of those clawbacks is calculated here, and where they bite they can cost more than the tax on the page above. If you are near an OAS threshold, the figure here is the easy half of your answer.

Where a $20,000 eligible dividend costs least

Same dividend, same $60,000 of other income, 13 jurisdictions:

1. British Columbia — $326 at 1.6%.

2. Yukon — $679 at 3.4%.

3. Northwest Territories — $712 at 3.6%.

4. Ontario — $1,278 at 6.4% ← this page.

5. New Brunswick — $1,513 at 7.6%.

6. Nunavut — $1,924 at 9.6%.

7. Saskatchewan — $1,927 at 9.6%.

8. Alberta — $2,007 at 10.0%.

9. Quebec — $2,594 at 13.0%.

10. Manitoba — $2,824 at 14.1%.

11. Prince Edward Island — $3,014 at 15.1%.

12. Nova Scotia — $3,637 at 18.2%.

13. Newfoundland and Labrador — $3,776 at 18.9%.

The spread is $3,450 on identical income, and it is driven as much by the provincial credit as by the provincial rate: British Columbia refunds 12.0% of the grossed-up amount against 6.3% in Newfoundland and Labrador. That is a difference no bracket table shows, and it can matter more than the rate itself.

Where these figures come from, and one honest caveat about the year

The gross-ups and the federal credit are set in the Income Tax Act as fractions — six elevenths and nine thirteenths of the gross-up — so they do not move with indexation and they hold for 2026.

The provincial credit percentages are from the 2025 editions of each province's Form 428 worksheet, which are the most recent published: the CRA does not release 2026 personal tax forms until 2027. Unlike brackets and basic personal amounts, these are not indexed figures — they are percentages set in provincial legislation that change only when a budget changes them. The income tax rates applied on this page are the 2026 ones.

That mismatch is stated rather than hidden, and it is the honest position: the alternative is either to publish nothing or to imply a 2026 source that does not exist. Every rate below carries the edition it came from.

CRA — Federal dividend tax credit (line 40425): 6/11 of the gross-up on eligible dividends, 9/13 on other-than-eligible — read 2026-09-08. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40425-federal-dividend-tax-credit.html

CRA — Lines 12000 and 12010: the 38% and 15% gross-ups — read 2026-09-08. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12000-taxable-amount-dividends-eligible-other-than-eligible-taxable-canadian-corporations.html

CRA — Worksheets for Form 428, 2025 editions, one per province and territory (the provincial dividend tax credit rates) — read 2026-09-08. https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html

Revenu Québec — Line 415, dividend tax credit — read 2026-09-08. https://www.revenuquebec.ca/en/citizens/income-tax-return/completing-your-income-tax-return/how-to-complete-your-income-tax-return/line-by-line-help/400-to-447-income-tax-and-contributions/line-415/

Province by province, the credit on the grossed-up amount:

Ontario — 10.0% eligible, 2.99% other-than-eligible. Worksheet ON428 (5006-D), 2025 edition.

British Columbia — 12.0% eligible, 1.96% other-than-eligible. Worksheet BC428 (5010-D), 2025 edition.

Alberta — 8.12% eligible, 2.18% other-than-eligible. Worksheet AB428 (5009-D), 2025 edition.

Manitoba — 8.0% eligible, 0.78% other-than-eligible. Worksheet MB428 (5007-D), 2025 edition.

Saskatchewan — 11.0% eligible, 2.52% other-than-eligible. Worksheet SK428 (5008-D), 2025 edition.

Newfoundland and Labrador — 6.3% eligible, 3.2% other-than-eligible. Worksheet NL428 (5001-D), 2025 edition.

Prince Edward Island — 10.5% eligible, 1.3% other-than-eligible. Worksheet PE428 (5002-D), 2025 edition.

Nova Scotia — 8.85% eligible, 1.5% other-than-eligible. Worksheet NS428 (5003-D), 2025 edition.

New Brunswick — 14.0% eligible, 2.75% other-than-eligible. Worksheet NB428 (5004-D), 2025 edition.

Yukon — 12.02% eligible, 0.67% other-than-eligible. Worksheet YT428 (5011-D), 2025 edition.

Northwest Territories — 11.5% eligible, 6.0% other-than-eligible. Worksheet NT428 (5012-D), 2025 edition.

Nunavut — 5.51% eligible, 2.61% other-than-eligible. Worksheet NU428 (5014-D), 2025 edition.

Quebec — 11.7% eligible, 3.42% other-than-eligible. Revenu Québec, line 415 (16.1460% and 3.9330% of the actual dividend).

And what is not covered:

— The gross-up raises your net income for every income-tested measure — the OAS recovery tax, the age amount, the GST credit and provincial benefits — and none of those clawbacks is calculated here. For a retiree they can cost more than the tax itself.

— Dividends from foreign corporations get no gross-up and no credit at all: they are taxed as ordinary income, with a foreign tax credit for what was withheld abroad. Nothing on this page applies to them.

— Capital dividends, dividends from a corporation's capital dividend account, and dividends subject to the tax on split income are all taxed under their own rules and are not covered.

Where to go next

Corporate tax calculatorThe first layer: what the company paid before the dividend reached you.Self-employed tax calculatorThe unincorporated alternative to the salary-or-dividend question.Canada income tax calculatorWhat the same money as salary would cost.All Canadian calculatorsProperty tax, car tax, estate and the rest.

Questions

How are dividends taxed in Canada?: You report more than you received. A $20,000 eligible dividend is grossed up 38.0% to $27,600, taxed at your normal rates, and then reduced by a federal credit of 15.02% of the grossed-up amount plus 10.0% in Ontario. The net cost on $60,000 of other income is $1,278, or 6.4%.
Why do I have to report more dividend income than I received?: The gross-up estimates the pre-tax corporate profit your dividend was paid out of. The dividend tax credit then refunds the corporate tax already paid on it. Together they are meant to make earning through a company and earning directly come out the same — the Canadian system calls it integration.
Are dividends tax-free in Canada?: Eligible dividends can be, at modest incomes. In Ontario a $20,000 eligible dividend costs nothing in tax while your other income stays below about $44,675, and a little below that the credits exceed the tax so it reduces the bill on your other income. Above that it is taxed, and the advantage over salary narrows as income rises.
What is the difference between eligible and other-than-eligible dividends?: Which corporate rate the profit was taxed at. Eligible dividends come from income taxed at the general corporate rate and carry a bigger gross-up and credit; other-than-eligible come from small-business-rate income and carry less. On $20,000 at $60,000 in Ontario that is $1,278 against $4,056.
Is it better to pay myself dividends or salary?: On income tax alone, dividends usually win in the middle of the range and win less at the top, because the credit is a fixed percentage while the tax it offsets rises. But salary carries CPP and dividends do not — which saves money now and forgoes pension later — and salary creates RRSP room while dividends do not. The tax comparison is the easy part and rarely the deciding one.
Do dividends affect my OAS?: Yes, and by more than you received. The OAS recovery tax is measured on net income, which includes the grossed-up dividend — $27,600 for a $20,000 dividend. That is the classic trap for retirees living on dividend income, and no clawback is calculated on this page.
Are these 2026 rates?: The gross-ups, the federal credit fractions and the income tax brackets are 2026. The provincial dividend tax credit percentages are from the 2025 editions of each province's Form 428 worksheet — the most recent published, since 2026 forms are not released until 2027. Those percentages are set in legislation rather than indexed, so they carry forward unless a provincial budget changes them.