The dividend tax credit is a non-refundable tax credit that may be deducted from personal taxes. The dividend is grossed up and this grossed up amount is included in taxable income as follows:
- 45% for eligible dividends (145% is included in taxable income), and
- 25% (125% is included in taxable income) for all other dividends.
The corresponding tax credits are equal to 11/18th of the grossed up amount of the eligible dividends (45%) and 2/3 of the grossed up amount for all other dividends (25%). For example eligible dividends:
- Taxable amount of the dividend = Dividends x 145%
- Tax credit received = 45% x 11/18
- The tax credit is equivalent to 27.5% of the dividend received or 18.966% of the taxable amount of the dividend.