Dividend Tax Calculator

How Dividend Tax Calculator Works

A dividend is paid out of profit the corporation has already paid tax on, so the personal system does two things to avoid taxing it twice at full rates. First it grosses the dividend up — non-eligible dividends by 15%, eligible dividends by 38% — to approximate the pre-tax corporate profit, and taxes that larger figure at your marginal rates. Then it hands back federal and provincial dividend tax credits calculated on the grossed-up amount, standing in for the corporate tax already paid. Eligible dividends come from profit taxed at the general corporate rate, so they carry the bigger gross-up and the bigger credit, and end up with less personal tax than non-eligible dividends from small-business-rate profit.

Because the grossed-up amount stacks on top of your other income, the same dividend costs more in a high-income year — this calculator measures that directly rather than reading a flat rate off a table. At low incomes the credits can be worth more than the extra tax the dividend adds, which is why the effective rate on eligible dividends can fall to zero (the credit is non-refundable, so it never goes below that). Your T5 slip reports the two types separately, each with its own grossed-up taxable amount and credit.

What this calculator does not cover

Foreign dividends get no gross-up and no dividend tax credit — they are taxed as ordinary income, usually after foreign withholding tax, so this tool does not apply to them. It also ignores the alternative minimum tax, which can bite when a return is dominated by dividends and other preferentially taxed income. And it answers only what a dividend costs, not whether a dividend is the right way to pay yourself — for that comparison, run the salary vs dividend calculator or talk to us about corporate tax planning for owner-managers.