Canadian Dividend Tax Credit: 1.38 or 1.15 Gross Up, CRA and CPA Guidance

Last updated: October 16, 2026

The dividend tax credit is a non-refundable credit that offsets double taxation on dividends from taxable Canadian corporations. It does not apply to foreign dividends. You calculate it by grossing up the dividend you received, then claiming the credit on federal line 40425 and provincial Form 428, line 61520 in many provinces.

TL;DR:

• The dividend tax credit only applies to dividends from taxable Canadian corporations and does not include foreign dividends like US stock payouts.
• Eligible dividends are grossed up by 38%, while other-than-eligible dividends are grossed up by 15%, to reflect corporate taxes paid prior to distribution.
• The federal credit rates are 15.0198% for eligible dividends and 9.0301% for other-than-eligible dividends, calculated on the grossed-up amounts.
• Provincial dividend tax credits vary widely, depend on the province, and can significantly affect net after-tax income for dividend earners.
• Common mistakes include including foreign dividends, using incorrect gross-up factors, and missing or misreporting slips, which can be avoided with careful review.

Table of Contents

• Who can claim the dividend tax credit?
• Eligible vs. other-than-eligible dividends: why the gross-up exists
• How do you calculate the federal dividend tax credit?
• Where do you report dividends and the credit on your tax return?
• Do provincial dividend tax credit rates differ?
• What mistakes trip people up when claiming this credit?
• When should you get a CPA involved?
• What the conventional advice on dividends gets wrong
• Get your dividend tax filing done right, at a flat rate
• Sources
• FAQ

Who can claim the dividend tax credit?

You can claim it if you’re a Canadian resident who reported dividends from a taxable Canadian corporation on your return. Foreign dividends, including US stock dividends, don’t qualify, even though they’re taxed as income. The credit is designed to recognize that the corporation already paid tax on that income before distributing it to you as a shareholder.

Your slips tell you exactly what you’re working with:

• T5 slips report dividends from public companies and most investment income.
• T3 slips cover dividends flowing through a trust, such as mutual fund or ETF distributions.
• T4PS slips apply to dividends paid through an employee profit-sharing plan.
• T5013 slips report dividends passed through a partnership.

If dividends came from a private corporation you own shares in and no slip arrived, you’re not off the hook. You still need to calculate and report the amount using the Federal Worksheet, and family share structures often need an extra layer of scrutiny before you claim anything.

Eligible vs. other-than-eligible dividends: why the gross-up exists

Not all dividends are taxed the same way, and the difference comes down to how the paying corporation was taxed. Eligible dividends come from income taxed at the general corporate rate, typically larger public companies or private corporations that earned income above the small-business limit. Other-than-eligible dividends (sometimes called non-eligible or regular dividends) come from income taxed at the lower small-business rate.

That distinction drives the gross-up, the mechanism that adds back an estimate of the corporate tax already paid so your taxable income reflects the pre-tax amount.

The gross-up numbers: Eligible dividends are grossed up by 38% (multiply the cash amount by 1.38). Other-than-eligible dividends are grossed up by 15% (multiply by 1.15).

Here’s the logic in plain terms. The corporation already paid tax on that income. Without the gross-up and credit system, you’d be taxed again on the full amount as if no corporate tax had ever touched it. This two-step process, gross up first, then credit back, is how Canada achieves what tax folios call integration: roughly equal total tax whether you earned the money as salary or received it as a dividend.

How do you calculate the federal dividend tax credit?

The calculation runs in two clean steps once you know which type of dividend you’re dealing with.

1. Gross up the cash dividend. Multiply an eligible dividend by 1.38, or an other-than-eligible dividend by 1.15. Report the result on line 12000 (both types) and line 12010 (other-than-eligible portion specifically).
2. Apply the federal credit rate. Multiply the grossed-up amount by 15.0198% for eligible dividends, or 9.0301% for other-than-eligible dividends. Enter that figure on line 40425.

Here’s how the arithmetic looks side by side for a $1,000 cash dividend of each type:

If a dividend never showed up on a slip, perhaps a distribution from a private corporation that hasn’t issued a T5 yet, you’re still required to calculate and report it using the same gross-up factors through the Federal Worksheet.

Pro Tip: Keep a simple spreadsheet showing the cash amount, gross-up, and credit for every dividend you receive during the year. If the Canada Revenue Agency ever asks for backup on a reassessment, you’ll have the math ready instead of reconstructing it from memory.

Where do you report dividends and the credit on your tax return?

Line placement matters here, because entering an amount on the wrong line is one of the most common reasons a return gets flagged for review.

• Line 12000 captures the taxable (grossed-up) amount of all dividends, eligible and other-than-eligible combined.
• Line 12010 isolates the taxable amount of other-than-eligible dividends specifically, used to help the CRA verify your credit calculation.
• Line 40425 is where the federal dividend tax credit itself goes, using the rates and reporting structure set out in the federal worksheet.
• Form 428, line 61520 (in most provinces) carries the equivalent provincial credit.

Check the box numbers on your slips before transferring anything: T3 boxes 39 and 51, T4PS boxes 26 and 32, T5 boxes 12 and 26, and T5013 boxes 131 and 134 all carry dividend and credit information depending on the slip type.

Do provincial dividend tax credit rates differ?

Yes, and the gap between provinces can be wide enough to matter if you’re receiving a meaningful amount of dividend income. Every province and territory sets its own dividend tax credit rate, applied after you’ve completed the federal calculation, and that provincial rate is what ultimately determines your total after-tax return on dividend income.

• Provincial rates aren’t listed on the federal worksheet. Check your specific provincial Form 428 or your provincial tax guide for the exact percentage.
• The provincial credit stacks on top of the federal one. Both reduce the tax you owe, but they’re calculated separately.
• Differences matter most if you hold a concentrated dividend-paying portfolio, run a small corporation and pay yourself dividends, or live in a province with a comparatively low provincial credit rate that doesn’t fully offset the corporate tax already paid.

If you’re deciding between salary and dividends as a business owner, the provincial rate where you live is often the deciding factor. It’s worth reviewing alongside broader compensation planning before you set your payment structure for the year.

What mistakes trip people up when claiming this credit?

The errors are predictable, and most of them are avoidable with a five-minute check before you file.

1. Including foreign dividends. US or other foreign-company dividends are taxable income, but they never qualify for the dividend tax credit. Keep them separate.
2. Missing a slip. If a T5 or T3 hasn’t arrived by filing season, don’t just skip the income. Use the Federal Worksheet to calculate it and file on time; you can amend later if the slip shows a different number.
3. Mixing up eligible and other-than-eligible amounts. Double-check the slip box before applying a gross-up factor. Using 1.38 on income that should have used 1.15 overstates both your taxable income and your credit.

Pro Tip: Before you submit, add up every dividend slip you received and compare that total against your brokerage or corporate records. A mismatch of even a few dollars is often the first sign a slip is missing or duplicated.

When should you get a CPA involved?

Straightforward dividend income from a handful of public company slips rarely needs professional help. The complexity shows up in specific scenarios: dividends paid to a spouse or family member where tax on split income rules might apply, a missing slip from a private corporation, or a shareholder agreement that affects how dividends are classified.

A firm like T-Ledgers Accounting reviews dividend classifications, prepares the supporting worksheets, and files corrections when a return needs amending after the fact.

What the conventional advice on dividends gets wrong

Most explainers treat the dividend tax credit as a pure calculation problem: gross up, apply the rate, enter the number. That’s accurate, but it skips the part that actually costs taxpayers money, which is classification. Whether a dividend is eligible or other-than-eligible depends on decisions made at the corporate level, not the shareholder level, and plenty of small business owners paying themselves dividends never confirm which type they’re issuing before it hits a T5.

The bigger gap is provincial. Federal guidance dominates the search results, but the provincial credit is what finally determines your net position, and it varies enough between jurisdictions that two taxpayers with identical eligible dividends can land on meaningfully different after-tax outcomes depending on where they live.

My take: prioritize getting the classification right at the source, before the slip is even issued, rather than treating the tax return as the place to sort it out. For owner-managers weighing salary against dividends, or families splitting income across multiple shareholders, that upfront decision matters more than the arithmetic that follows it. The gross-up and credit rates are fixed. Your classification and your provincial rate are the two variables actually worth your attention.

— Wajahat Ajmal (CPA)

Get your dividend tax filing done right, at a flat rate

T-Ledgers Accounting handles personal tax filing at a flat rate from $110 plus HST/GST for a regular T1, so a return with dividend income, multiple slips, or a classification question doesn’t turn into a surprise invoice.

If you’re not sure whether last year’s T5 was classified correctly, or you’re missing a slip from a private corporation and need the Federal Worksheet done properly, that’s exactly the kind of review our CPAs handle every tax season. We also offer a personal tax worksheet if you want to track your own gross-up and credit calculations before you file. Visit the personal tax page to start a filing or ask a question about your specific dividend situation.

FAQ

What is a tax credit on dividends?

A tax credit on dividends is a non-refundable federal and provincial credit that reduces the tax you owe on dividend income from taxable Canadian corporations, because that income was already taxed at the corporate level. You claim the federal portion on line 40425 and the provincial portion on Form 428.

What are the requirements to claim a dividend tax credit in Québec?

You must be a Québec resident who received dividends from a taxable Canadian corporation and reported the grossed-up amount on your provincial return. Québec applies its own gross-up and credit rates through its provincial tax form, separate from the federal calculation, so check the current Québec tax guide for the exact provincial percentage.

What is the new $7,500 tax credit in Canada?

This question typically refers to a separate federal program unrelated to dividend income, such as a home renovation or accessibility credit, and definitions and eligibility vary by program year. It has no connection to the dividend tax credit covered here, which applies specifically to dividend income from Canadian corporations.

Do I claim dividends on my taxes?

Yes. All dividends from taxable Canadian corporations must be reported as taxable income on line 12000, using the grossed-up amount rather than the cash amount you actually received. You then claim the federal dividend tax credit on line 40425 to offset the tax on that grossed-up income.

Recommended

• Capital dividend account: your complete guide for 2026
• Corporate tax rates Canada: 2026 guide for business owners
• Paying Dividends To Your Spouse? Be Wary of TOSI (Tax On Split Income)

This article is intended to inform readers in general terms. It is not intended to provide any tax or business advice. Please consult your T-Ledgers advisor if you have any questions about your unique situation. While we have tried to ensure the accuracy of the information in this article, we accept no liability for errors or omissions.