Dividend Tax by Province in 2026: Eligible, Non-Eligible and Foreign Dividends at the Top Bracket
Published by 
Steffan Kharmaaiarvi, founder
A Canadian client in the top bracket keeps very different amounts from a dollar of dividends depending on who paid it. Eligible dividends from Canadian companies carry the gross-up and dividend tax credit; foreign dividends, including those from US holdings, are taxed like interest, with US withholding credited rather than added. In the four largest provinces the gap between eligible and foreign dividends is about 13 to 17 percentage points. This note works out dividend tax by province for 2026 at the top bracket from the Income Tax Act, CRA's rate tables and provincial forms, shows the arithmetic for Ontario's surtax and Quebec's abatement, and compares after-tax income from Canadian and US holdings. It is decision support, not tax advice.
How the dividend tax credit works
- Gross-up. An eligible dividend is included in income at 138% of the amount received; another taxable dividend from a Canadian corporation (non-eligible) at 115% (Income Tax Act, s. 82(1)(b)).
- Federal credit. 6/11 of the eligible gross-up and 9/13 of the non-eligible gross-up (s. 121). As a share of the grossed-up amount that is 15.0198% and 9.0301%.
- Provincial credit, as a share of the grossed-up amount, from each province's 2025 worksheet (the 2026 worksheets were not yet published when this was written): Ontario 10% and 2.9863% (Worksheet ON428), British Columbia 12% and 1.96% (Worksheet BC428), Alberta 8.12% and 2.18% (Worksheet AB428). Quebec's credit is 16.146% of eligible and 3.933% of ordinary dividends (Revenu Québec, line 415), which is 11.7% and 3.42% of the grossed-up amounts.
- Foreign dividends get no gross-up and no credit: they are taxed at the full marginal rate, with a credit for foreign tax paid (s. 126).
Top rates for 2026
From CRA's 2026 rate table: federal 33% over CAD 258,482; Ontario 13.16% over CAD 220,000; British Columbia 20.5% over CAD 265,545; Alberta 15% over CAD 370,220. Quebec's top rate is 25.75% over CAD 132,245 (Revenu Québec). "Top bracket" below means income above both the federal and the provincial threshold.
- Ontario surtax. On Form ON428 the surtax is 20% of basic Ontario tax above one threshold plus 36% above a second (CAD 5,710 and CAD 7,307 on the 2025 form), and it is computed on Ontario tax before the Ontario dividend tax credit is subtracted (line 62, then line 70). At the top, each extra dollar of Ontario tax costs 1.56 dollars: 13.16% × 1.56 = 20.53%.
- Quebec abatement. Quebec residents' federal tax is reduced by the refundable Quebec abatement, 16.5% of basic federal tax (line 42900, after the federal dividend tax credit; T1 for Quebec, line 44000).
The results
| Province (top bracket, 2026) | Eligible dividends | Non-eligible dividends | Foreign dividends and interest |
|---|---|---|---|
| Ontario | 39.34% | 47.74% | 53.53% |
| Quebec | 40.11% | 48.70% | 53.31% |
| British Columbia | 36.54% | 48.89% | 53.50% |
| Alberta | 34.31% | 42.31% | 48.00% |
Computed per dollar of cash dividend as gross-up × (top rate − credit rate), federal plus provincial, with 2026 rates and 2025 provincial credits. Ontario's eligible rate, step by step:
- Federal: 1.38 × (33% − 15.0198%) = 24.81%.
- Ontario: 1.38 × 13.16% × 1.56 − 1.38 × 10% = 28.33% − 13.80% = 14.53%.
- Total: 24.81% + 14.53% = 39.34%. Foreign: 33% + 20.53% = 53.53%.
Quebec's eligible rate: federal 24.81% × (1 − 16.5%) = 20.72%, plus Quebec 1.38 × (25.75% − 11.7%) = 19.39%, total 40.11%.
Canadian versus US holdings: a worked example (illustrative)
An Ontario client in the top bracket receives CAD 10,000 of eligible dividends from Canadian shares and CAD 10,000 of dividends from US shares, both in a non-registered account. Round, illustrative figures.
| Canadian eligible | US dividends | |
|---|---|---|
| US withholding (15%) | — | 1,500 |
| Canadian tax before foreign tax credit | 3,934 | 5,353 |
| Foreign tax credit | — | −1,500 |
| Total tax | 3,934 | 5,353 |
| Kept | 6,066 | 4,647 |
10,000 × 39.34% = 3,934 and 10,000 × 53.53% = 5,353. The US withholding does not add to the total in a taxable account because it is credited (CRA line 40500, Form T2209, with the provincial part on Form T2036), provided the client has enough Canadian tax on that income. The CAD 1,419 gap per CAD 10,000 is a reason to look at where each holding sits: in an RRSP, both are sheltered until withdrawal, and only the US one can bear an unrecoverable withholding (see US withholding by account and fund structure).
What Borderfolio shows
For a client resident in Canada, the Cross-Border tab adds Canadian dividends at home:
- A table for every province and territory: top-bracket rates on eligible, non-eligible and foreign dividends and interest, from the 2026 federal and provincial rates and the 2025 credit worksheets, with Ontario's surtax and Quebec's abatement and credit.
- The client's province first when it is set on the tax profile, and the client's expected Canadian and foreign dividends a year in taxable accounts beside it.
- The client's own rate. The profile form offers the province's sourced top rate on foreign dividends as a one-click entry, or the province's marginal rate at an income the adviser types (the income is not stored). Nothing is applied silently; Canada has no default dividend rate in Borderfolio.
Not modelled: lower brackets in the table, the alternative minimum tax and OAS recovery; Canadian fund distributions are counted as foreign because they mix income types. See the cross-border documentation.
Frequently asked questions
What is the top tax rate on eligible dividends in Ontario in 2026?
39.34%, computed from the 2026 federal and Ontario top rates, the federal dividend tax credit in s. 121, Ontario's 10% credit and its surtax, which is charged before the Ontario dividend credit.
Why are foreign dividends taxed more than Canadian dividends?
The gross-up and dividend tax credit apply only to dividends from Canadian corporations. Foreign dividends, including US dividends, are taxed at the full marginal rate, with a credit for the foreign tax withheld.
Does US withholding tax add to the tax on US dividends in a taxable account?
Generally not: the 15% withheld is credited against Canadian tax on that income through the foreign tax credit, so the total stays at the Canadian marginal rate, provided there is enough Canadian tax on it.
How does the Quebec abatement affect dividend tax?
Quebec residents' basic federal tax, after the federal dividend tax credit, is reduced by 16.5%. Quebec's own rates and dividend credit come from Revenu Québec.