Glossary term
Eligible dividend
An eligible dividend is a Canadian taxable dividend category where the cash dividend is grossed up to a taxable dividend amount before dividend tax credits are applied.
Plain meaning
What eligible dividend means
Eligible dividends receive a specific tax treatment. The cash dividend received is grossed up to determine the taxable dividend amount, and a dividend tax credit is then applied in the tax calculation. This can make the tax effect different from salary, interest, capital gains, or non-eligible dividends.
Formula role
How OpenBook uses it
Eligible dividend calculators start with the cash dividend amount, apply the eligible dividend gross-up to estimate the taxable dividend amount, then apply federal and provincial or territorial dividend tax credits where modelled.
The estimate depends on taxable income, province or territory, and the tax year or data set being used.
Common confusion
Cash amount and taxable amount differ
The cash dividend received is not usually the same as the taxable dividend amount reported in the tax calculation. The gross-up creates the taxable dividend amount; the dividend tax credit is applied after that amount has been included in the tax calculation.
Primary references
These links give the official tax context behind this term.