--- title: "Eligible vs Non-Eligible Dividends: Gross-Up and Tax Credit" url: https://www.everstonecpa.com/blog/eligible-vs-non-eligible-dividends-canada description: "Eligible and non-eligible dividends are taxed differently, and a small corporation usually can’t pay the cheaper one. See the gross-up and credit." type: guide updated: 2026-10-12 summary: "A dividend from your corporation is either eligible or non-eligible , and the label is not cosmetic. Eligible dividends are grossed up by 38% with a federal credit of 15.0198% of the grossed-up amount; non-eligible dividends are grossed up by 15% with a 9.0301% credit. Most dividends a small CCPC pays its owner are non-eligible, because the income was already taxed at the small-business rate." faq_count: 7 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Eligible vs Non-Eligible Dividends in Canada Corporate tax and CRA # Eligible vs non-eligible dividends: *what the two types mean for an owner-manager* By EverStone CPA · Updated August 2026 · 7 min read **Quick answer:** A dividend from your corporation is either **eligible** or **non-eligible**, and the label is not cosmetic. Eligible dividends are grossed up by 38% with a federal credit of 15.0198% of the grossed-up amount; non-eligible dividends are grossed up by 15% with a 9.0301% credit. Most dividends a small CCPC pays its owner are non-eligible, because the income was already taxed at the small-business rate. Dividends to another corporation follow [different rules](https://www.everstonecpa.com/blog/inter-corporate-dividends-canada). The gross-up and dividend tax credit, visualized. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form) ## Key takeaways - A dividend from a Canadian corporation is either “eligible” or “other than eligible” (non-eligible) — the corporation designates which when it pays. - Eligible dividends: 38% gross-up, 15.0198% federal dividend tax credit on the grossed-up amount. - Non-eligible dividends: 15% gross-up, 9.0301% federal dividend tax credit on the grossed-up amount. - Most small-business ([CCPC](https://www.everstonecpa.com/glossary#ccpc)) dividends are non-eligible because they come from income taxed at the small-business rate. - The whole system exists to approximate “integration” — roughly equal total tax whether income flows out as salary or dividends. **On this page**[Two flavours of the same thing](#s-two-flavours-of-the-same-thing)[The gross-up and credit, side by side](#s-the-gross-up-and-credit-side-by-side)[Where “eligible” dividends actually come from: the GRIP](#s-where-eligible-dividends-actually-come-f)[Why the two-system design exists: integration](#s-why-the-two-system-design-exists-integra)[What this means in practice](#s-what-this-means-in-practice)[Frequently asked questions](#s-frequently-asked-questions)[Paying yourself dividends this year?](#s-paying-yourself-dividends-this-year) ## Two flavours of the same thing A dividend is simply a distribution of a corporation’s after-tax profits to its shareholders. What trips up a lot of owner-managers is that Canada has two parallel dividend systems running at once, and every dividend your corporation pays has to be designated as one or the other: an **eligible dividend** or an **other-than-eligible** (commonly called **non-eligible**) dividend. The designation isn’t a matter of preference — it depends on what kind of corporate income the dividend is being paid out of. Both types use the same two-step mechanism on your personal return: the actual cash you receive is “grossed up” to a larger taxable figure, and then a “dividend tax credit” is applied to offset the personal tax on that grossed-up amount. The two types just use different numbers. **Paying yourself dividends?** We designate them correctly, track the company's general rate income pool and prepare the T5s, at a fee quoted in writing. Run the numbers in [our 2026 pay planner](https://www.everstonecpa.com/salary-vs-dividends-calculator), or [get a quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) ## The gross-up and credit, side by side Here are the current federal figures. The gross-up inflates your cash dividend to its taxable amount; the credit is then calculated as a percentage of that grossed-up amount. | Dividend type | Gross-up | Federal dividend tax credit | | Eligible | 38% (taxable = 138% of cash) | 15.0198% of the grossed-up amount | | Non-eligible | 15% (taxable = 115% of cash) | 9.0301% of the grossed-up amount | On top of the federal credit, every province applies its own provincial dividend tax credit to the same grossed-up amount, at its own rate, which is why the final tax on a dividend varies by where you live. In British Columbia, for example, the non-eligible provincial credit is 1.96% of the grossed-up amount. The larger gross-up and credit on eligible dividends aren’t a bonus — they reflect the fact that eligible dividends are paid out of income that was taxed at the higher *general* corporate rate, so more corporate tax has already been paid. Non-eligible dividends come out of income taxed at the lower *small-business* rate, so less corporate tax was paid and a smaller personal credit is warranted. Not sure which dividends your corporation can pay? Whether you can pay an eligible dividend depends on your corporation’s income history and its [GRIP](https://www.everstonecpa.com/glossary#grip) balance. A CPA can tell you what’s available and model the tax before you declare anything. [Send an Enquiry →](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form) [See fixed fees](https://www.everstonecpa.com/pricing) ## Where “eligible” dividends actually come from: the GRIP A Canadian-controlled private corporation can only pay an eligible dividend to the extent it has a balance in its **General Rate Income Pool (GRIP)**. In plain terms, the GRIP tracks income the corporation earned that was taxed at the general corporate rate rather than the small-business rate — for instance, [active business income](https://www.everstonecpa.com/glossary#abi) above the $500,000 small-business limit, or certain income that didn’t qualify for the small-business deduction. If your corporation has only ever earned income under the small-business limit, it likely has little or no GRIP, and its dividends will be non-eligible. This is why most owner-managers of small corporations pay themselves non-eligible dividends: their corporate income was taxed at the small-business rate, so that’s the pool the dividends come from. It’s not a mistake — it’s the system working as designed. ## Why the two-system design exists: integration The gross-up-and-credit machinery looks needlessly complicated until you understand what it’s trying to achieve: **integration**. The goal is that a dollar of business income should bear roughly the same total tax whether it’s earned by you directly, paid to you as salary, or flowed through your corporation and paid out as a dividend. The gross-up notionally reverses the corporate tax already paid, and the dividend tax credit returns the personal-level equivalent of that corporate tax, so you’re not taxed twice on the same dollar. Integration is never perfect — small “integration costs” or savings exist at different income levels and in different provinces, but it’s close enough that the salary-versus-dividend decision usually turns on other factors like RRSP room, CPP, and cash flow rather than on a large tax difference. We walk through that trade-off in [our guide to paying yourself salary vs dividends](https://www.everstonecpa.com/blog/salary-vs-dividends-2026). ## What this means in practice For most incorporated owners, the practical takeaways are short: your corporation will usually pay you non-eligible dividends; those come with the smaller gross-up and credit; and the corporation has to formally designate the dividend type and, for eligible dividends, notify shareholders. Every dividend also has to be reported to CRA on a [T5 slip](https://www.everstonecpa.com/blog/t4-t4a-t5-slip-filing-deadlines-canada), and paid in proportion to share ownership unless you’ve set up separate share classes. Getting the mechanics right — the designation, the GRIP tracking, the T5 — is exactly the kind of thing that’s invisible until CRA asks about it. There is also a third kind of dividend that is neither eligible nor non-eligible: a capital dividend, paid tax-free out of the [capital dividend account](https://www.everstonecpa.com/blog/capital-dividend-account-explained). Sources - [Canada Revenue Agency — Taxable amount of dividends (eligible and other than eligible)](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) - [Canada Revenue Agency — Federal dividend tax credit (line 40425)](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) - [Canada Revenue Agency — Corporation income tax](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form) before acting on anything here. Which pool a dividend comes from matters most at year end, when a bonus is the alternative. See [how the bonus and dividend comparison actually works](https://www.everstonecpa.com/blog/bonus-vs-dividend-year-end-canada). If family members are on the payroll, [salary paid to a spouse](https://www.everstonecpa.com/blog/paying-your-spouse-a-salary-canada) has its own reasonableness test. About this article **EverStone CPA** Prepared and reviewed by a Chartered Professional Accountant at EverStone CPA, a CPA firm working with small and midsized businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form) If the shareholder receiving the dividend is not resident in Canada, the eligible or non-eligible question is joined by a withholding obligation. See [NR4 slips and Part XIII tax](https://www.everstonecpa.com/blog/nr4-slips-non-resident-payments-canada). Which type of dividend to pay depends on the corporation’s pools and the owner’s other income that year; [dividend planning](https://www.everstonecpa.com/tax-planning-services-canada) works it out before the cheque is written. ### Related articles [Salary vs dividends →](https://www.everstonecpa.com/blog/salary-vs-dividends-2026) [Shareholder loans →](https://www.everstonecpa.com/blog/shareholder-loans-canada-taking-money-out-of-corporation) [The small-business deduction →](https://www.everstonecpa.com/blog/small-business-deduction-passive-income-canada) [Ask a CPA about your own situation →](https://www.everstonecpa.com/quick-question)[Regulation 105: Paying Non-Residents →](https://www.everstonecpa.com/blog/non-resident-withholding-regulation-105)[CPP and EI for 2027: What’s Known, and What Isn’t Yet →](https://www.everstonecpa.com/blog/cpp-ei-rates-2027) FAQ ## Frequently asked questions about eligible vs Non-Eligible Dividends in Canada **What’s the difference between eligible and non-eligible dividends?** They’re two categories of dividends from Canadian corporations. Eligible dividends are grossed up by 38% and carry a federal dividend tax credit of 15.0198% of the grossed-up amount; non-eligible (other-than-eligible) dividends are grossed up by 15% with a federal credit of 9.0301%. Eligible dividends come from corporate income taxed at the general rate; non-eligible dividends come from income taxed at the small-business rate. **Which type will my small corporation pay?** Usually non-eligible dividends. A corporation can only pay eligible dividends to the extent of its General Rate Income Pool (GRIP), which reflects income taxed at the general corporate rate. Most small CCPCs earn income under the $500,000 small-business limit, so they have little GRIP and their dividends are non-eligible. **What is the General Rate Income Pool (GRIP)?** The GRIP is a running balance that tracks a corporation’s income that was taxed at the general corporate rate rather than the small-business rate. Eligible dividends can only be paid out of this pool, and the corporation must designate them as eligible and notify shareholders. **Do I report dividends on a slip?** Yes. Dividends paid by your corporation are reported to CRA and to you on a T5 slip, generally due by the last day of February following the calendar year in which the dividends were paid. **Are dividends better than salary?** Not automatically. Because of tax integration, the total tax is often similar. The right mix usually depends on your need for RRSP room, whether you want to contribute to CPP, cash-flow and administrative preferences, and your province. It’s worth modelling both before deciding. **Does my corporation have to tell me which type of dividend it paid?** Yes, and for eligible dividends the notification is formal. The corporation designates the dividend type when it pays, and an eligible dividend requires written notice to shareholders at that time. The designation flows through to the T5 slip, which drives the gross-up and credit on your personal return. The paperwork matters because your personal tax outcome depends on it. **Can I pay a dividend to only one shareholder?** Not unless the share structure allows it. Dividends are paid in proportion to ownership within a share class, so a single class means every holder receives their proportionate amount. Paying different amounts to different family members generally requires separate share classes set up in advance, and any such plan also has to be tested against the tax on split income rules. ## Paying yourself dividends this year? Tell us what the company earns and what you take out. A CPA replies by email within one business day with the right dividend type and a fixed fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) **Run your own numbers with the free calculators:** [work out your T2 deadline](https://www.everstonecpa.com/t2-deadline-calculator) · [work out your instalments](https://www.everstonecpa.com/tax-instalment-calculator) · [run the salary-or-dividends numbers](https://www.everstonecpa.com/salary-vs-dividends-calculator) [← Marketplace GST/HST rules: when the platform collects and when you must](https://www.everstonecpa.com/blog/ecommerce-marketplace-facilitator-rules-canada) [Employee or contractor? How CRA actually tells the difference →](https://www.everstonecpa.com/blog/employee-vs-contractor-cra-worker-classification) ## Have a question about this? Ask it free through [the quick-question form](https://www.everstonecpa.com/quick-question) and a CPA replies by email within one business day. For something that needs a proper look, a one-off **Advice Call** is a paid 45-minute session with a Chartered Professional Accountant: $225 plus GST, booked by email or phone with a secure payment link. It is credited against your first invoice if you become a client within 60 days. Looking for an accountant to take this on rather than an answer? [Send an enquiry](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…have been completing my bookkeeping, taxes and financials for the last 2 years and they have been amazing. Thank you!” R. H. · Google review --- Source: https://www.everstonecpa.com/blog/eligible-vs-non-eligible-dividends-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online