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Tax and Accounts

Dividend Gross-Up and Dividend Tax Credit (DTC)

The mechanism that integrates corporate tax with personal tax on Canadian dividends by grossing up the dividend and then applying a credit.

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Definition

Eligible dividends (from large Canadian-resident corporations paying full corporate tax) are grossed up by 38% when reported on a personal tax return. The federal Dividend Tax Credit is then 15.0198% of the grossed-up dividend, reducing the net personal tax owed. Non-eligible dividends (from small business deduction income) are grossed up 15% with a smaller federal DTC of 9.0301%. The gross-up and DTC together are designed to approximate full integration: the same dollar of corporate income should bear the same total tax whether paid as salary (deducted at the corporate level) or as a dividend (taxed at both corporate and personal levels with a credit).

Source

Income Tax Act s.82 (gross-up), s.121 (Dividend Tax Credit)

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