Eligible vs Non-Eligible Dividends in Canada: 2026 Rates and Rules

Understanding eligible vs non-eligible dividends is the difference between a T5 slip you file and forget and a dividend strategy that saves real money. Both types come out of the same corporation, but they carry different gross-ups, different tax credits, and very different personal tax rates. In British Columbia, a top-bracket shareholder pays about 36.5% on an eligible dividend and about 48.9% on a non-eligible one. The label depends on how the corporation was taxed on the income it is paying out, and the corporation chooses it, within limits, when it declares the dividend. This guide explains the mechanics, the 2026 BC rates, the GRIP and RDTOH accounts, and how Vancouver owner-managers decide which type to pay. Figures are current as of September 2026.

What are eligible and non-eligible dividends?

An eligible dividend is a taxable dividend that a Canadian corporation designates as eligible under subsection 89(14) of the Income Tax Act. For a Canadian-controlled private corporation, eligible dividends can only be paid to the extent of its general rate income pool, or GRIP: broadly, active business income that was taxed at the general corporate rate rather than the small business rate, plus eligible dividends the company itself received. Public companies designate almost all of their dividends as eligible.

A non-eligible dividend, sometimes called an ordinary or other-than-eligible dividend, is any taxable dividend that is not designated eligible. For a typical Vancouver CCPC that earns under $500,000 of active income and claims the small business deduction, most dividends will be non-eligible, because the income was taxed at the combined 11% BC small business rate rather than the 27% general rate.

Both types are taxable dividends. Neither should be confused with a capital dividend, which comes from the capital dividend account and is not taxed at all in the shareholder’s hands.

How the gross-up and credit work in 2026

When you receive a dividend, you do not report the cash amount. You report a grossed-up amount that approximates the pre-tax corporate income, then claim a dividend tax credit that approximates the corporate tax already paid. In 2026 the federal figures are:

Notice how much of the gap comes from the provincial credit. BC gives a 12% credit on eligible dividends but only 1.96% on non-eligible dividends, so the province’s share of the difference is significant. The corporation, in turn, paid 27% combined tax on the income behind an eligible dividend versus 11% on the income behind a non-eligible one. Integration is imperfect, but the two systems roughly cancel out when you add corporate and personal tax together.

Why the GRIP balance matters

A CCPC cannot simply call a dividend eligible because the shareholder would prefer it. It must have GRIP. The account is tracked on Schedule 53 of the T2 return and, in simplified terms, grows by 72% of the corporation’s taxable income that was not sheltered by the small business deduction and was not investment income, plus eligible dividends received, and shrinks by eligible dividends paid.

The designation itself is a formality with a deadline. CRA accepts a notation on the T5 slip, in the directors’ resolution, or a letter to shareholders, but it must be made when the dividend is paid. For dividends paid to all shareholders of a class, CRA also accepts a designation posted on the company’s website.

The refundable tax connection: ERDTOH and NERDTOH

A CCPC that earns investment income, such as interest, rent, or taxable capital gains, pays a high corporate rate but gets part of it back when it pays taxable dividends. Since 2019 that refundable tax has been split into two pools. Eligible refundable dividend tax on hand, or ERDTOH, comes from Part IV tax on portfolio eligible dividends and is refunded when the company pays eligible dividends. Non-eligible RDTOH, or NERDTOH, comes from tax on interest, rent, and capital gains and is refunded only when the company pays non-eligible dividends.

The practical consequence: a holding company with NERDTOH from rental income must pay non-eligible dividends to get its refund, even if it also has GRIP. Paying an eligible dividend first can strand the refund. Ordering the dividends correctly is a standard piece of year-end work for holding companies and any corporation with passive investment income.

A Vancouver example: $80,000 of dividends

Priya owns a Vancouver consulting corporation and needs $80,000 of personal cash in 2026. She has no other income. Compare the personal tax if the dividend is eligible versus non-eligible, using 2026 federal and BC rates and only the basic personal amounts.

In BC, an individual with no other income can receive roughly $80,755 of eligible dividends in 2026 before paying any personal tax, because the credits exceed the tax on the grossed-up amount. Non-eligible dividends run out of that room far sooner. But the corporation paid almost $20,000 more tax to create the eligible dividend. When you add the two layers, the non-eligible route is still cheaper in total, which is why deliberately paying general-rate tax to create GRIP rarely makes sense. Eligible dividends are valuable when GRIP already exists, not something to manufacture.

Which dividend should your corporation pay?

Common mistakes with eligible vs non-eligible dividends

When professional CPA advice becomes useful

Talk to a CPA before year-end if your corporation has both GRIP and RDTOH, receives portfolio dividends, is close to losing the small business deduction, or pays dividends to more than one family member. The dividend type, the order of payment, and the calendar year all change the outcome. Our corporate tax planning team models the corporate and personal layers together, and personal tax planning lines up the dividends with your other income. See also our overview of 2026 corporate tax rates.

Frequently asked questions