A gross-up is an upward adjustment to a dividend amount on your tax return, designed to reflect the pre-tax corporate income and paired with the dividend tax credit.
Because dividends are paid from income a corporation already paid tax on, Canada's system asks you to report a grossed-up amount, more than the cash you received, to approximate the pre-tax corporate profit. You then claim the dividend tax credit to offset the corporate tax already paid. The two mechanisms work together so the same income is not taxed twice.
Eligible dividends carry a larger gross-up (reflecting general-rate corporate tax) and non-eligible dividends a smaller one. The gross-up is why dividend income can push your taxable income, and income-tested benefits, higher than the cash received would suggest.
You receive a $10,000 eligible dividend. With a 38% gross-up you report $13,800 on your return, then claim the dividend tax credit, so your net tax reflects the corporate tax the company already paid.
Primary source
- Income Tax Act, s. 82 Taxable dividends received
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Income tax is tax charged on the income you earn in a year, levied by both the federal government and your province or territory. Rates are graduated, so successive slices of taxable income are taxed at higher rates, and credits such as the basic personal amount reduce the tax calculated. Employment income is taxed through payroll withholding and settled on your T1 return. Quebec residents also file a separate provincial return with Revenu Quebec.
Canada taxes income in graduated brackets, so only the income above a threshold is taxed at that bracket's higher rate and moving up a bracket never reprices the income below it. There is one federal set of brackets and a separate set for each province and territory, and the thresholds are indexed to inflation every year. Look up the current figures for your province on the CRA rate tables rather than relying on an older list.
The GST rate is 5%, unchanged since 1 January 2008 and current for 2025 and 2026. It reaches every province and territory, but in five provinces it is folded into the HST: you charge 13% in Ontario, 15% in New Brunswick, Newfoundland and Labrador and Prince Edward Island, and 14% in Nova Scotia, down from 15% on 1 April 2025. In Alberta, the Northwest Territories, Nunavut and Yukon, 5% applies alone.
Taxable income is built in steps. First add every source of income for the year, including employment, self-employment, pensions, investment income and the taxable portion of capital gains. Then subtract permitted deductions such as RRSP contributions, union dues, child care costs and deductible support payments to reach net income, and subtract the remaining deductions to reach taxable income. Tax is calculated on that figure using the federal and provincial brackets, and credits then reduce the tax itself.
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Reviewed and fact-checked by Udit Gupta
Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA
Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.
The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023
Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.
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