In Canada, the distinction between eligible and non-eligible dividends hinges on the tax rate the paying corporation paid on its profits, dictating the shareholder's dividend tax credit. Eligible dividends come from high-taxed, large public corporations, while non-eligible dividends are from lower-taxed, small businesses (CCPCs).
Eligible dividends are taxed more favourably than non-eligible dividends because the corporation has paid tax at higher rates and the individual receiving the dividend pays less. Dividends are taxed at lesser rates than employment income and many other types of income in your hands personally.
The main difference between qualified and ordinary dividends is tax treatment: qualified dividends are taxed at lower long-term capital gains rates, while ordinary dividends are taxed at higher ordinary income rates. To be qualified, dividends must meet specific IRS criteria, primarily a holding period requirement of owning the stock for over 60 days during a 121-day window around the ex-dividend date, and be from a U.S. or qualifying foreign corporation. Ordinary dividends are the default, including payments from banks, REITs, and co-ops, and don't meet these rules.
To qualify for a dividend payout, you must be a “Shareholder of Record”. That means you must already be listed as one of the company's shareholders on the Record Date. Dividend payouts are usually in relation to the overall financial health of the company, as well as the price at which their stocks/shares are trading.
Non-eligible dividends are taxed at a higher personal income tax rate than eligible dividends. The reason? They come with a lower dividend tax credit, which means less tax relief for you as a shareholder. Corporations that have not paid tax at the general corporate tax rate.
To receive a dividend, an investor must be listed as a shareholder on the company's books as of the record date. This means that purchasing the stock on or after the record date will not qualify an investor for the dividend, as the ownership will not be recorded in time.
Non-Eligible RDTOH (NERDTOH)
This typically includes income such as interest, foreign dividends, and certain rental incomes. When a corporation pays non-eligible dividends to its shareholders, it can receive a refund from its NERDTOH account at a rate of $30 for every $100 paid out.
The ex-dividend date is critical for determining who qualifies for the dividend. If you purchase the stock on or after this date, you will not be eligible for the upcoming payment. Only those who own the stock before the ex-dividend date are entitled to receive the dividend.
Generally, for eligible dividends:
To avoid taxes on dividends, hold them in a Roth IRA for tax-free growth and withdrawals, use a Traditional IRA/401(k) to defer taxes until retirement (often a lower bracket), invest in tax-advantaged education accounts, or if your income is low enough, qualify for the zero percent long-term capital gains rate on qualified dividends in a standard brokerage account. Some dividends, like a return of capital, aren't taxed, and you can also manage withholding by adjusting your W-4 to avoid penalties, notes the IRS.
At the most basic level, you only need to own a stock by the ex-dividend date (or deadline) in order to get the dividend. And you can sell the stock a day or two after that, once everything settles. So in theory, you only need to own the stock for a couple of days to get the dividend.
The main difference between qualified and ordinary dividends is tax treatment: qualified dividends are taxed at lower long-term capital gains rates, while ordinary dividends are taxed at higher ordinary income rates. To be qualified, dividends must meet specific IRS criteria, primarily a holding period requirement of owning the stock for over 60 days during a 121-day window around the ex-dividend date, and be from a U.S. or qualifying foreign corporation. Ordinary dividends are the default, including payments from banks, REITs, and co-ops, and don't meet these rules.
There are two broad categories of taxable dividends: eligible and non-eligible dividends. The difference has a significant impact on the gross up rate. Per section 82(1)(b) of the ITA, eligible dividends receive a 38% gross up, while non-eligible dividends receive a 15% gross up.
To determine whether you should get a dividend, you need to look at two important dates. They are the "record date" or "date of record" and the "ex-dividend date" or "ex-date." When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend.
Qualified dividends are reported to shareholders by corporations using IRS Form 1099-DIV. A dividend is qualified if the shareholder held shares of common stock for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
The amount of tax-free dividend income depends on your filing status and income level, with the 0% tax bracket applying to qualified dividends for single filers with taxable income up to $48,350 (2025), married couples up to $96,700, and heads of household up to $64,750. Beyond these income thresholds, dividends are taxed at 15% or 20%, but dividends in a Roth IRA are completely tax-free if withdrawals are qualified.
In order for a stock to be considered qualified (and taxed at a lower rate), you must purchase and hold it for longer than 60 days during the 121-day period beginning 60 days before the ex-dividend date. If you purchase your stock after the ex-dividend date, you will receive ordinary dividends.
The amount of dividend shall be deposited in a scheduled bank in separate account within five days. Dividend may be paid by cheque or warrant or in any electronic mode to the shareholders entitled to the payment of dividend. No dividend can be declared in the event of failure to repay the deposits accepted by company.
Dividend stripping (also known as dividend arbitrage) is the practice of buying shares a short period before a dividend is declared, called cum-dividend, and then selling them when they go ex-dividend, when the previous owner is entitled to the dividend.
Eligible dividends as non-eligible: You lose out on the higher dividend tax credit, resulting in a higher tax burden for shareholders. Non-eligible dividends as eligible: You may receive a tax credit you aren't entitled to, leading to a reassessment, penalties, and the requirement to repay the credit.
A corporation designates a dividend as an eligible dividend by notifying, in writing, each person to whom any dividend is paid that the dividend is an eligible dividend so that the recipient individual can claim the appropriate gross-up and DTC.