How Canadian Eligible Dividends Are Taxed in Ontario (2026)

I think most people would agree that taxes can take a significant bite out of our income. At the same time, we are fortunate to live in a country that offers a high quality of life, excellent healthcare, and many public services. There is certainly a balance between paying our fair share and managing our finances in the most efficient way possible.

That said, if there is a safe, legal, and effective way to reduce taxes, it makes sense to explore it. Tax-efficient investing can be a valuable component of a comprehensive financial plan and may help investors keep more of their hard-earned money.

In addition to Richardson Wealth's Tax & Estate Planning team, I work closely with a few recommended tax specialists who provide advice to both individual investors and corporate holding companies. Their expertise helps clients navigate complex tax matters and identify opportunities to improve after-tax outcomes.

What Are Eligible Dividends?

One area that often provides significant tax advantages is Canadian eligible dividends. Compared to employment income or interest income, eligible dividends generally receive preferential tax treatment, making them an attractive source of income for many investors, particularly retirees. Eligible dividends are those paid by Canadian public companies, and by private companies from income taxed at the general corporate rate; they qualify for the enhanced dividend tax credit.

Ontario Marginal Tax Rates on Eligible Dividends (2026)

Note: The marginal tax rate for dividends is expressed as a percentage of the actual eligible dividends received, not the grossed-up taxable amount. Eligible dividends are grossed up by 38% for tax reporting purposes.

Taxable Income	Income Tax Rate	Eligible Dividend Tax Rate
First $53,891	19.05%	-8.24%
Over $53,891 to $58,523	23.15%	-2.58%
Over $58,523 to $94,907	29.65%	6.39%
Over $94,907 to $107,785	31.48%	8.92%
Over $107,785 to $111,814	33.89%	12.24%
Over $111,814 to $117,045	37.91%	17.79%
Over $117,045 to $150,000	43.41%	25.38%
Over $150,000 to $181,440	44.97%	27.53%
Over $181,440 to $220,000	48.26%	32.07%
Over $220,000 to $258,482	49.82%	34.22%
Over $258,482	53.53%	39.34%

Combined federal and Ontario rates for 2026, including surtaxes and excluding the Ontario Health Premium. Source: TaxTips.ca.

As you can see, Canadian eligible dividends can be considerably more tax-efficient than other forms of income. This creates opportunities for investors who rely on dividend income and have little or no other taxable income.

How Much Dividend Income Can You Earn Tax-Free in Ontario?

To see how these rates work in practice, consider an Ontario investor whose only income is eligible dividends from a non-registered portfolio.

Example: Mike (Age 55)

Portfolio Profile

-$1,450,000 non-registered investment portfolio

-4% dividend yield

-Approximately $58,000 in annual eligible dividend income

-Ontario resident

-No employment, pension, or other sources of taxable income

Mike's Tax Outcome

Mike is currently not working and has no other income sources. His only source of income is the eligible dividends generated by his investment portfolio.

As a result, he receives approximately $58,000 annually in eligible Canadian dividends and pays no federal or Ontario income tax, excluding the Ontario Health Premium.

This example highlights one of the unique benefits of dividend-focused investing in a non-registered account. While investment decisions should never be based solely on tax considerations, understanding how different forms of income are taxed can help improve after-tax income and enhance long-term financial outcomes.

Is Dividend Investing Right for Your Retirement Income?

Tax-efficient investing can play an important role in preserving wealth and maximizing retirement income. For many Ontario investors, Canadian eligible dividends remain one of the most tax-advantaged sources of investment income available.

Of course, every situation is unique. Factors such as RRSP or RRIF withdrawals, pension income, government benefits, spousal income, and other sources of taxable income can significantly affect the tax outcome.

Before implementing any tax strategy, we strongly recommend discussing your situation with a qualified tax professional to ensure that any strategy is appropriate for your specific circumstances.

Disclaimer: The information above is for educational purposes only and should not be considered tax advice. Tax legislation and rates may change, and individual circumstances will vary. Please consult your accountant, tax advisor, or other qualified professional before making any tax-related decisions.

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Questions You May Be Asking

What is an eligible dividend in Canada?

An eligible dividend is one paid by a Canadian public company, or by a private company from income taxed at the general corporate rate. It is grossed up by 38% for tax reporting and qualifies for the enhanced federal and provincial dividend tax credits.

Why can eligible dividends have a negative tax rate?

At lower incomes, the dividend tax credits are larger than the tax on the grossed-up dividend. The extra credit can reduce tax owing on other income. The credits are non-refundable, so they cannot create a refund on their own.

How much in eligible dividends can I receive in Ontario without paying income tax?

An Ontario resident with no other income can receive at least $58,000 of eligible dividends in 2026 without paying federal or Ontario income tax. The Ontario Health Premium still applies, at $750 at that income level. Other income sources reduce this amount.

Do dividends in a TFSA or RRSP get the dividend tax credit?

No. Dividends earned inside a TFSA or RRSP are not taxed as dividends, so the dividend tax credit does not apply. RRSP and RRIF withdrawals are taxed as ordinary income.

Do dividends affect Old Age Security?

Yes. The grossed-up amount of eligible dividends counts toward net income for the OAS recovery tax, so large dividend income can reduce OAS benefits for recipients aged 65 and over.

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The tax rates and information presented are based on rules and legislation in effect for 2026, are subject to change, and are provided for general informational purposes only.

The opinions expressed are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice.

Richardson Wealth Limited does not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

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