Eligible Dividend

An eligible dividend is a taxable dividend that is paid by a Canadian resident corporation, received by a Canadian resident individual, and designated by a corporation as an eligible dividend under section 89(14) of the Income Tax Act. An eligible dividend is subject to a more generous gross-up and dividend tax credit (DTC) and is taxed at a lower rate than a non-eligible dividend. Generally, therefore, Canadian resident individuals prefer to receive eligible dividends.

A corporation designates a dividend as an eligible dividend by notifying, in writing, each person to whom any dividend is paid that the dividend is an eligible dividend so that the recipient individual can claim the appropriate gross-up and DTC. A corporation with many shareholders (such as a public corporation) can notify its shareholders of the eligible dividend on its website or in a press release.

A CCPC can only pay an eligible dividend to the extent that it has a general rate income pool (GRIP) balance. A non-CCPC (such as a public corporation) can pay an eligible dividend to the extent that the corporation does not have a low rate income pool (LRIP) balance. Most dividends paid by public corporations are eligible dividends.