Eligible vs. Non-Eligible Dividends
Dividendes déterminés et non déterminés in French
Quick definition
Eligible and non-eligible dividends are the two tax classes of Canadian dividends. The class reflects the corporate tax already paid: eligible dividends come from profits taxed at the general corporate rate, non-eligible dividends from profits taxed at the lower small business rate.
One dividend, two tax treatments
Canada taxes dividends through the gross-up and dividend tax credit system, which compensates shareholders for corporate tax the company already paid. But corporations do not all pay the same tax, so the system splits dividends into two classes with different gross-ups and credits. This article covers the classification: how a dividend ends up in one class or the other, and who tends to receive which. The mechanics and worked arithmetic live in our dividend tax credit article.
Where each class comes from
The classification follows the corporate tax rate paid on the profits behind the dividend. Eligible dividends are paid out of income taxed at the general corporate rate: essentially everything from Canadian public companies, plus dividends a Canadian-controlled private corporation (CCPC) pays out of active business income above the small business limit. The corporation must formally designate a dividend as eligible when it pays it; you do not choose anything.
Non-eligible dividends (the CRA says "other than eligible") come from income that already enjoyed the small business deduction, the reduced tax rate on a CCPC's first $500,000 of active business income (as of July 2026). Because the corporation paid less tax up front, the shareholder gets a smaller gross-up and a smaller credit. Most dividends that owner-operators pay themselves from an incorporated business are non-eligible.
The mechanics, in one table
Both classes run through the same two-step machinery, gross-up first, credit second, just with different numbers.
| Eligible | Non-eligible | |
|---|---|---|
| Gross-up | 38% | 15% |
| Federal credit (on the grossed-up amount) | 15.0198% | 9.0301% |
| Typical payer | Public corporations, large CCPC income | CCPCs using the small business deduction |
Who encounters which
If you hold Canadian stocks or ETFs in a taxable account, virtually everything you receive is eligible; your T5 slip reports it in the eligible dividend boxes (24 and 25, versus boxes 10 and 11 for non-eligible dividends), and tax software handles the rest.
If you own an incorporated business, the dividends you pay yourself are usually non-eligible, and the class is one input in the classic salary vs. dividend decision. Salary is deductible to the corporation, builds RRSP room and CPP entitlement, and costs payroll contributions; dividends skip those but arrive with the smaller credit attached. The right mix depends on the corporation's income, your cash needs and your province, and it is an accountant conversation rather than a rule of thumb.
The rate difference in practice
At most income levels, non-eligible dividends bear noticeably more combined personal tax than eligible ones, typically several percentage points more depending on your province and marginal tax rate (approximate; run your own numbers in our Tax Calculator). Both classes are still generally taxed more lightly than interest income, and eligible dividends compete with the treatment set by capital gains tax rules at many incomes.
Before envying eligible dividend recipients, remember integration: the corporation behind a non-eligible dividend paid less corporate tax first. Add the corporate layer back and the total tax burden of the two classes lands in roughly the same place, by design.
The corporate side: the GRIP account
How does a private corporation prove it earned general-rate income? Through its GRIP (general rate income pool), a running tax account that accumulates income taxed at the general rate along with eligible dividends received from other companies; the corporation can designate eligible dividends up to its GRIP balance, and designating beyond it triggers a penalty tax.
In Canada
Québec uses the same two federal classes and the same gross-ups, but grants its own dividend tax credit rates for each class on the TP-1 provincial return (as of July 2026). Québec investors receive a relevé 3 alongside the T5, and combined dividend tax rates in Québec differ from the rest of the country, as ordinary rates do.
For investors the distinction requires no action: the payer designates the class, the slip reports it, software computes it. It matters mainly for planning, from which account should hold which asset to how business owners pay themselves.
Worked example
Two neighbours each receive $10,000 of Canadian dividends in a taxable account. Priya holds bank shares: her dividends are eligible and grossed up to $13,800. Marco owns a plumbing CCPC and pays himself a non-eligible dividend, grossed up to $11,500. At a middle Ontario income, Priya's combined tax on the dividend is very roughly $650 while Marco's is roughly $2,000 (illustrative, as of July 2026).
The gap is not unfairness. Marco's corporation paid Ontario's combined small business rate of about 12% on those profits first, while Priya's bank paid about 26.5% (as of July 2026). Stack the corporate and personal layers together and the two totals land close to each other, which is exactly what the system intends.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026