Canadian source dividends are payments that are received as a result of owning a share or a number of shares of the ownership in a corporation. Dividends, for tax purposes, are divided into two categories: eligible dividends and other than eligible dividends. The combined total of eligible dividends and other than eligible dividends is entered on line 12000 of the return. Taking advantage of available non-eligible dividend tax credits can save on taxes.

Finding Information on Other Than Eligible Dividends

Information about other than eligible dividends is listed on slips such as the T5 (box 11 of the statement of investment income), the T4PS (box 25 of the statement of employees profit sharing plan allocations and payments), the T3 (box 32 of the statement of trust income allocations and designations) and the T5013 (box 130 on the statement of partnership income).

Where to Enter Other Than Eligible Dividend Information

The total of the amounts of the other than eligible dividends from the T5, T4PS, T3 and T5013 slips, is entered on line 12010 of the T1. If no information slip is received, the taxable amount of other than eligible dividends must be determined by multiplying the actual amount of other than eligible dividends received by 115%, and it should be reported on line 12010.

Claiming the Dividend Tax Credit for Other Than Eligible Dividends

For other than eligible dividends, the federal dividend tax credit is 9.03% of the taxable amount of dividends reported on line 12010 of the return. Foreign dividends don’t qualify for the federal dividend tax credit. In addition, special rules apply to dividend income if it is from property (including shares) one family member lends or transfers to another family member. The amount of the dividend tax credit goes on line 40425 of Schedule 1. A separate provincial or territorial credit is calculated and entered on the appropriate provincial or territorial tax form.

Claiming Amounts From a Spouse

In some cases, it may be better to report all the taxable dividends a spouse or common-law partner paid from taxable Canadian corporations. This can only be done if, by including the dividends in income, a claim or an increase in a claim for the spouse or common-law partner amount is made (line 30300 on Schedule 1). Making this choice may enhance the use of the dividend tax credit. Do not include these dividends on the Schedule 2 when calculating the spousal amount.

Resources:

• Line 40425 – Federal dividend tax credit
• Line 12000 – Taxable amount of dividends (eligible and other than eligible) from taxable Canadian corporations