Tax on dividends from your corporation, by province

What is the tax rate on dividends from my own corporation?

For a taxable dividend, the rate is the change in your personal tax when that dividend is added to your return. A valid capital dividend follows different rules. A dividend paid from income that benefited from the small business deduction is generally non-eligible; confirm the designation before estimating tax (CRA). For why a corporation can pay either type, see how corporations are taxed.

The gross-up is from CRA's reporting rule; the federal credits are shown in CRA's T5 guide. Your province usually adds its own dividend credit. The credits can reduce tax to zero, but they do not turn an unused amount into a refund.

Example

What if non-eligible dividends are my only income?

Illustrative estimates in C$, rounded to the nearest C$100: a single adult resident all year, with no other income or deductions. They use published brackets, the basic personal and dividend credits, B.C.'s and New Brunswick's income-tested reductions, Ontario's reduction, surtax and Health Premium, and Quebec's health services fund contribution. They exclude other credits, benefit changes, Quebec's prescription drug insurance premium and tax on split income for family dividends. Alberta, Nova Scotia and Saskatchewan use their latest published dividend-credit worksheets; confirm those rates on the final current-year forms.

The percentages use unrounded estimates of tax on the whole dividend. For the next payment, estimate its added tax separately.

What if a B.C. owner takes a C$60,000 dividend?

With no other income, a C$60,000 non-eligible dividend enters the tax calculation as C$69,000 of taxable income before dividend credits. It produces about C$4,000 of personal tax under these assumptions: keep about 7% of this payout for that bill. A small further dividend in the same income range faces about 20% tax on its next dollars; recalculate for a larger payment. The unpaid balance is normally due April 30 of the following year; instalments could bring payments forward.

What if a B.C. owner also earns C$40,000 in salary?

Assume payroll already withholds the right tax on a C$40,000 salary. A further C$40,000 non-eligible dividend adds about C$6,700 of personal income tax, ignoring payroll-related credits and deductions. Keep about 17% of this dividend for that bill; its last dollars face about 20%, so estimate a later payment separately.

How do the gross-up and dividend tax credits work?

The gross-up makes the taxable amount larger than the cash you received, then the federal and provincial dividend credits reduce the resulting tax. For a non-eligible dividend, report the grossed-up amount on lines 12000 and 12010; eligible dividends go on line 12000. CRA's line instructions explain the reporting. A T5 slip normally shows the actual dividend, taxable amount, and federal credit. The provincial credit is claimed on the provincial return or schedule (CRA).

How much tax will I pay on my dividend in my province?

Start with your province of residence at year-end, then add the grossed-up dividend to all your other taxable income. Apply federal and provincial brackets, personal credits, and both dividend credits. CRA's bracket table confirms that each bracket rate applies only to the income within that bracket.

If you also have salary, interest, rental income, or another dividend, calculate total tax with and without the proposed payment. The difference is the tax caused by that payment. If your family receives the Canada child benefit, the grossed-up dividend can raise family net income and reduce later payments. The table shows personal income tax only.

Why do people quote such different dividend tax rates?

An average rate divides total tax by the whole dividend. A marginal rate measures tax on the next dividend dollar. Average rates can be low when personal credits shelter the first part of a payout, while marginal rates rise as grossed-up income enters higher brackets. Eligible dividends also have a different gross-up and credit, so an eligible rate cannot be used for a non-eligible payout. CRA distinguishes the dividend types.

Quoted rates may also combine corporate and shareholder tax. This page estimates only the shareholder's tax on cash already available for a dividend. To compare the full cost with wages, see salary or dividends.

How much of each dividend should I set aside for tax?

For one added dividend, set aside its estimated added tax. For several payments, estimate the full-year tax with all planned dividends, subtract payroll withholding and tax instalments already paid, then reserve the remaining bill across those payments. Update the estimate when your income or dividend type changes.

Keep the dividend resolution or payment record, the T5 or RL-3 slip, your salary and withholding records, other income estimates, and any instalments already paid. A dividend usually arrives without payroll withholding, so the cash in your account is not the after-tax amount. For the amount that can be received before tax becomes payable, see how much dividend income is tax-free.

When is the tax due?

The remaining personal income tax is normally due April 30 after the tax year, even if a self-employed person's filing deadline is later (CRA). CRA instalments are generally required if federal net tax owing exceeds $3,000 ($1,800 for Quebec residents) this year and in either of the two preceding years. They are due March 15, June 15, September 15 and December 15 (CRA). A reminder does not by itself settle what you must pay; see tax instalment reminders.

How is Quebec different?

Quebec residents calculate both federal and Quebec personal tax and file separate returns. The federal calculation includes the Quebec abatement of 16.5% of basic federal tax (Finance Canada). Quebec applies its own brackets and dividend credit. Its Schedule F may add a health services fund contribution. Reserve for both balances and pay the CRA and Revenu Québec separately by April 30 (CRA, Revenu Québec). Quebec instalments have a separate $1,800 net-tax threshold and the same quarterly due dates.

Different for you?

• Your corporation may pay eligible dividends: confirm the corporate tax pool and designation in how corporations are taxed.
• You may pay an Ontario or Quebec dividend next year: Ontario has enacted, and Quebec has announced, lower non-eligible dividend credits for that year (Ontario, Quebec); see dividend before or after year-end.
• Your corporation owes CRA tax: a dividend to a related shareholder can expose that shareholder to the corporation's tax debt under Income Tax Act section 160, up to the dividend's value plus interest; CRA may assess at any time.
• You are deciding between wages and dividends: compare the whole corporate and personal result in salary or dividends.
• You received an instalment reminder: check the calculation in tax instalment reminders.
• You cannot pay the balance by April 30: see owing tax after paying yourself dividends.
• Your corporation pays a spouse or child: check paying family members before using the table.
• You also file a U.S. return: see American owners of Canadian corporations for the U.S. treatment.
• A payment may not be a dividend: gather the share records and slips and seek individual tax help before using the table.