Eligible vs Non-Eligible Dividends and the Gross-Up

You pay tax on a Canadian dividend at one of two rates, and which one you get depends on a single word on your slip. If the company that paid you designated the dividend eligible, it carries a bigger credit than a non-eligible one, and that credit is worth more than the extra tax that comes with it. On $2,000 at a middle Alberta income you'd pay about $203 on the eligible kind and about $444 on the non-eligible kind. Earn little enough and the eligible $2,000 costs you less than nothing, because the leftover credit comes off the tax you owe on everything else. There's a second effect too, and you won't see it in your bank account. Your return counts $2,760, not the $2,000 that reached you.

Key takeaways

• You don't choose whether a dividend is eligible. The company paying you decides it, and it's settled before the money arrives.
• Your return adds 38% to an eligible dividend and 15% to a non-eligible one before taxing it. That padding is called the gross-up, and you pay less on the ones with the bigger one, because they carry the bigger credit.
• On $2,000 in Alberta you'd pay about $203 at a middle income, and about $444 if the same cash were non-eligible. At a lower income the eligible $2,000 isn't just untaxed. It takes about $31 off the tax you owe on everything else.
• That gross-up is real income on your return. It adds $760 you never received, and your net income rises by the whole $2,760, which is what the Old Age Security clawback and the age amount are worked out from.

What makes a dividend eligible?

You're holding an eligible dividend if a Canadian company paid it to you while you lived in Canada, and designated it eligible at the time.² That designation is the whole test. You don't get there by picking a particular kind of share or a company of a particular size, although in practice the big public names you can buy on an exchange pay you eligible dividends and small private ones usually don't.

You end up with two kinds because the companies paying you haven't all paid tax at the same rate first. The credit gives you back what they already paid on your behalf, so when a company that paid you was taxed at the general rate, you get the bigger one.

Nothing stops you checking which kind you're holding. If you have a T5, your eligible amounts sit in boxes 24, 25 and 26 and your non-eligible ones in boxes 10, 11 and 12.² A T3 splits them the same way under different numbers, which reading your slips sets out in full.

Two of those figures land on your return. Line 12000 holds every Canadian dividend you received, eligible and non-eligible together. Line 12010 repeats just the non-eligible part on a line of its own.¹ One sits inside the other. Alberta's worksheet makes that plain. To find what you were paid in eligible dividends, it takes your line 12000 and subtracts your line 12010.⁴ If you add the two together, you've counted your non-eligible dividends twice.

If you hold shares from outside Canada, none of it applies to them. You get no credit on those dividends at all, which the conditions for claiming it say outright.³ What happens to your foreign dividends works differently from the first step onward.

Why the bigger gross-up gets you a smaller bill

Say you're an Albertan, you were paid $2,000 of eligible dividends, and your taxable income lands somewhere in the $61,201 to $117,045 band.⁵

That $2,000 lands on your return grossed up by 38%, so line 12000 reads $2,760.¹ You're taxed on it at that bracket's rate of 30.50%, which is $841.80.⁵ Then two credits come off, a federal one worth 15.0198% of the grossed-up figure and an Alberta one worth 8.12%, so you subtract $414.55 and $224.11.²⁴ You pay $203.14.

Now say the same $2,000 reached you as non-eligible dividends. The gross-up is only 15%, so line 12000 reads $2,300.¹ You're taxed $701.50 at that same 30.50%, and the two credits are smaller too, 9.0301% of that grossed-up figure federally and 2.18% in Alberta, so $207.69 and $50.14.²⁴ You pay $443.67.

You come out ahead on the bigger gross-up, because the credit that comes with it outweighs the extra tax it created. That's the whole trick, and it makes the word on your slip worth roughly $240 a year to you on a $2,000 dividend at this income.

None of that arithmetic is yours to do. The credit is already worked out and printed on the slip, in box 26 if you were paid eligible dividends and box 12 if you weren't, and you copy it onto line 40425 and onto line 61520 of your provincial form.³ The percentages explain where the gap comes from. Nobody expects you to multiply anything.

When a dividend costs you less than nothing

The picture changes lower down the income scale. If your taxable income in Alberta sits between $22,770 and $58,523, you're taxed on ordinary income at 22.00%.⁵

The $2,000 still shows up as $2,760, and you're taxed $607.20 on it. The two credits haven't moved, because they're worked out on the grossed-up amount rather than on your income, so you still take off $414.55 and $224.11. That's $638.66 of credit against $607.20 of tax.

The credit is bigger than the tax. You put the $31.46 left over against the tax you owe on everything else you earned that year, so being paid the dividend leaves your total bill lower than if it had never reached you.

Published rate tables show you 0.00% here, and the table's own footnote explains why. Where the credit beats the tax on the dividends, the printed rate leaves out what that leftover is worth against tax on your other income.⁵ So the printed column stops at zero. Your bill does not.

Two things keep that honest. Your federal credit only reduces your federal tax and your Alberta credit only reduces your Alberta tax, so you can't pool them, and you have to use each leftover against the tax it came from. At this income you'll have plenty of both. And the footnote puts it as credit set against tax you owe, so if you earn little enough to owe none, there's nothing for it to be set against.

You see the widest gap between the two kinds when you earn the least.

The $760 your bank account never saw

The gross-up does a second thing to you, and the credit can't undo it.

When that $2,000 eligible dividend becomes $2,760 on line 12000, you've earned $2,760 as far as your return is concerned. The credit doesn't change that. A credit comes off your tax at the end, not off your income on the way in, so the $760 stays in your income however big the credit turns out to be.

If you're nowhere near a threshold, that costs you nothing at all. You feel it when you're close to one.

Which benefits read the bigger number?

If a benefit is calculated from your net income, it reads $2,760 rather than the $2,000 you were paid. Two of them reach you sooner than the rest.

Old Age Security, or OAS, is the first. If your net income before adjustments, which is line 23400 on your return, came to more than $93,454 for 2025, you repay 15 cents of pension on each dollar above that line.⁶ If you were already above the line, the $760 you never received costs you $114 of pension at 15 cents in the dollar, which the $2,000 on its own wouldn't have. The arithmetic of the clawback goes into what moves it.

The age amount is the second, and you meet it a long way earlier. If you're 65 or older there's an age amount on your return, and it shrinks as your net income climbs. Federally it's full at $46,432 of net income and gone by $107,819. In Alberta yours stays whole to $47,234 and is gone past $89,534.⁵ That first threshold sits more than $47,000 below the OAS line, so you can be losing part of that credit years before you start worrying about a pension.

Whether either one reaches you depends on the rest of your return. Line 23400 from last year is the figure to look at, and somebody has already worked it out for you.

Three people holding the same dividend

Which half of this matters more to you depends on where your income sits and where the dividends come from.

Maya, 24, early in her working life. Her income puts her in that lower band, so the eligible dividends in her taxable account cost her nothing and the leftover credit shaves a little off the tax on her pay. She checks whether the slip says eligible, because on the non-eligible side that same $2,000 would take $248.17 off her. If you're early on and earning about what she does, you're in the same spot, and you'll recognize the habit from "The Raise," where she tracks down a pay rise that went missing.

Frank, 52, who owns Calder Electric. The company pays him in non-eligible dividends, so his $2,000 costs him $443.67 at a middle income, against the $203.14 it would cost if the same cash were eligible. He can't switch that on his personal return. What the company is allowed to designate follows from how its own income was taxed, so he takes the question to whoever prepares its return. If your own company pays you the same way, that's the position you're in too.

Joanne, 61, who stops work in a few years. She watches the gross-up rather than the credit. Every $2,000 of eligible dividends puts $2,760 onto line 23400, and the age amount and the OAS repayment both read that line. She looks it up on last year's return to see how much room she actually has. If you're within a few years of stopping work, that's the line you'd check first, and you can watch her do the same sum in "Counting What's Already There."

Before you compare two dividend payers

The account comes first. If you hold them inside a tax-free savings account, or TFSA, or a registered retirement savings plan, or RRSP, none of it touches you. There's no gross-up, no credit and no line on your return, so whether the dividends are eligible stops mattering entirely. You only feel it in a taxable account, and there's more on where dividend payers fit alongside everything else you own.

Your province changes half the answer. The federal gross-up and the federal credit are the same wherever you live in Canada. The provincial credit and the provincial rate are not, so the figures here are Alberta's and yours will differ. There's more in how the brackets work where you live.

How much is at stake moves with your income. At a middle income you saw about $240 between the two kinds on $2,000. Earn less and you're looking at closer to $280, with the eligible side crossing below zero.

A spouse can carry them instead. You may put all of your spouse's or partner's taxable Canadian dividends on your return, but only where doing so lets you claim or increase the spouse or common-law partner amount on line 30300.¹ It has to be all of them, and only on that condition.

These numbers have a year attached. There have been five different non-eligible rates since 2009, and you're on the last of them at 15% where you'd once have been on 25%.² An older article, or a calculator nobody has updated, can be quoting you a rate that was right when it was written and isn't the one you're on now.

Whether the difference is big enough to act on turns on how much you hold in a taxable account and how close you sit to a threshold. Neither of those is in a rate table.

Put your own dividend through it

For your own amount, your province and your bracket instead of Alberta's, run your own numbers and change the inputs.

Where this usually lands

Most people who hold Canadian dividend payers inside a TFSA or an RRSP never meet any of this, because nothing on the slip reaches their return. If that's you, the eligible question simply doesn't arise.

With a taxable account and a middle income, most people treat the eligible and non-eligible split as a reason to read the slip rather than a reason to trade. On the amounts you're likely holding, they're weighing a couple of hundred a year against whatever made them buy the thing to begin with.

Most people near the OAS line end up watching the gross-up rather than the credit. If you're close to it, the credit is reducing your tax while the gross-up is raising your income, and your repayment comes off the income.

You might land somewhere else, and that's fine. Your last return holds the two figures that settle it, line 23400 and how much you keep in a taxable account.

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Common questions

Does any of this happen inside a TFSA or an RRSP?+

No. Dividends paid inside your TFSA or your RRSP aren't grossed up, don't get the credit, and don't reach your return at all. The eligible and non-eligible distinction only matters to you in a taxable account.

Do I have to work out the dividend tax credit myself?+

No. It's already calculated and printed on your slip, in box 26 for eligible dividends and box 12 for non-eligible ones on a T5. You copy it onto line 40425 of your federal return and line 61520 of your provincial form.

Why do lines 12000 and 12010 both have a number on them?+

Line 12000 is the taxable amount of all your Canadian dividends together, and line 12010 repeats the non-eligible part of that same total on its own line. Because line 12010 sits inside line 12000, adding the two gives you double the non-eligible dividends you were actually paid.

Do dividends from US or foreign shares get the dividend tax credit?+

No. You only get the credit on dividends from taxable Canadian corporations, and foreign dividends are excluded from it. You're taxed on them as ordinary income instead, and foreign withholding tax is a separate question on top of that.

Can I report my spouse's Canadian dividends on my return?+

Only in one situation. You can do it only where moving all of your spouse's or partner's taxable Canadian dividends onto your return lets you claim or increase the spouse or common-law partner amount on line 30300. It has to be all of them, not a part you pick.

Is a dividend eligible because it comes from a big company?+

Not quite. It's eligible because the company paying it designated it that way, which follows from how that company's own income was taxed. Large public companies usually pay you eligible dividends and small private ones usually don't, but the payer's designation settles it, and your slip records it.

Sources

1. CRALines 12000 and 12010 - Taxable amount of dividends from taxable Canadian corporations. The 138% and 115% gross-ups, what each line contains, and the spousal reporting election. Accessed 2026-09-04.
2. CRAT5 Guide - Return of Investment Income. What makes a dividend eligible, the slip boxes, the 15.0198% and 9.0301% credit rates, and the historical rate tables. Accessed 2026-09-04.
3. CRAFederal dividend tax credit. That the credit amounts come from your slips, where they are claimed, and that foreign dividends do not qualify. Accessed 2026-09-04.
4. CRAWorksheet AB428, form 5009-D. The Alberta dividend tax credit at 8.12% and 2.18%, and the line 12000 minus line 12010 calculation. Accessed 2026-09-04.
5. EYCombined federal and provincial personal income tax rates, Alberta 2026 (table dated 15 June 2026). The bracket rates, note 3 on the excess credit, and note 4 on the age credit. Accessed 2026-09-04.
6. Service CanadaRepayment of Old Age Security pension. The $93,454 threshold for the 2025 income year, the 15% repayment rate, and that the income tested is net income before adjustments at line 23400. Accessed 2026-09-04.

Educational, not financial advice. Figures verified against primary sources on the date shown.

See it in a story: "The Question That Keeps Her Up," where Joanne finds nobody taught her how to take money out. For what the rest of your investment income costs you, see how investment income is taxed in Canada, or browse the whole taxes hub.