Glossary term
Dividend tax credit
A dividend tax credit is a tax credit applied after the cash dividend has been grossed up to a taxable dividend amount.
Plain meaning
What dividend tax credit means
The dividend tax credit is part of Canada's taxable dividend system. The cash dividend is first grossed up to calculate the taxable dividend amount included in income. Federal and provincial or territorial dividend tax credits are then applied to reduce tax.
Formula role
How OpenBook uses it
Dividend calculators use the credit after the gross-up step. The credit can materially change the tax effect of eligible dividends and non-eligible dividends.
Federal and provincial or territorial credit rates can differ, so the same cash dividend can produce different estimates depending on jurisdiction and dividend type.
Common confusion
Credit is not the same as tax-free
A dividend tax credit reduces calculated tax. It does not mean the dividend is ignored for taxable-income, benefit, or credit calculations.
Primary references