Eligible dividend

An eligible dividend is a taxable dividend that the paying corporation has designated as eligible. The designation matters to an owner deciding how a private company pays dividends, and to a buyer reviewing the company’s past dividends.

The designation

The CRA says a corporation has to designate each eligible dividend before or at the time it is paid, and notify shareholders in writing, as subsection 89(14) requires. It can designate a portion of a taxable dividend or the whole amount. For a Canadian-controlled private corporation, the CRA says eligible dividends paid up to its general rate income pool do not incur Part III.1 tax.

What to check, and by province

• Whether the notice to shareholders exists for each dividend
• Whether designations stayed within the company’s pool at year end
• Which provincial or territorial credits the recipient’s province applies

The CRA’s page on lines 12000 and 12010 points to the federal dividend tax credit and, separately, to provincial and territorial tax and credits for individuals, so check the recipient’s province. See the answer on selling shares to your own holding company.