Comments for Individual Income Tax Return (Canada)

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May 20, 2010
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Dividend Gross Up
by: Bookkeeping Essentials

Hi there,

When you receive Canadian dividends that are reported in box 10 of a T5 slip, the amount is grossed up by 25% so that 125% is included in income ... yes you are reporting more income than you actually received.

In your example, $20,000 in box 10 x 1.25 = 25,000 in box 11. Box 11 is what gets reported on Schedule 4 and carried forward to line 120.

You will receive an offsetting non-refundable dividend tax credit of 16 2/3% of the actual amount of the dividend received. So in your example, your credit would be $20,000 x 16 2/3% = $3,334.

Each province also has offsetting tax credits. When you add the federal and provincial tax credits together, they approximate the amount of tax paid by the corporation.

This happens because corporations distribute after tax dollars. Dividends receive special tax treatment to ensure the shareholder receives credit for the tax already paid by the corporation.

I know it is hard to understand, but dividends actually have a lower tax rate than other types of income.

Laura
CPB-Certified Bookkeeping Professional
Bookkeeping Essentials

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