Determinate and non-determinate dividend

A dividend is a portion of a company's profits that it distributes to its shareholders. "Eligible" dividends come from profits taxed at the standard rate and provide the shareholder with a more generous tax credit. "Non-eligible" dividends come from profits taxed at the reduced small business rate and result in higher taxes for the individual.

Brief

Determined: comes from profits taxed at the company's normal rate; the owner benefits from an increased tax credit (38% increase);
Not determined: comes from profits that benefited from the reduced rate for small businesses (the DPE, deduction for small businesses); 15% surcharge;
The company must "designate" the dividend determined in writing at the time of payment;
Both appear on the T5 slip (the tax form that reports your dividends), and on the T3 slip.

Why does this matter?

If you pay yourself dividends from your company, this distinction directly affects your personal tax bill. For example, on $10,000 received, an eligible dividend may cost you a few hundred dollars less in tax than an ineligible one, because the company has already paid more tax. This is the principle of "integration": in total, the tax authorities aim for roughly the same amount, regardless of the method used. For a Quebec entrepreneur, the real challenge is to carefully balance salary and dividends according to your financial needs, your RRSP (retirement savings plan), and your projects. We recommend doing this exercise every year. Bankeo will connect you with a verified accountant/CPA free of charge for this calculation, and we'll be there to support you.

Frequently asked questions

What exactly is the difference?

A dividend is a portion of a company's profits that it pays to its shareholders. "Eligible" or "ineligible" simply indicates the tax rate at which the company has already paid tax on those profits. This then determines how much tax YOU pay on the dividend: eligible dividends cost you less, ineligible dividends cost you a little more.

Can an SME pay specific dividends?

A small or medium-sized enterprise (SME) can do this if it has a "general rate income account" (GRIA), meaning profits that have not benefited from the reduced small business tax rate. Many Quebec SMEs primarily pay ineligible dividends. The designation must be made in writing at the time of payment; otherwise, the dividend is treated as ineligible.

Salary or dividend: how to decide?

There's no single answer: salary provides rights to RRSP (retirement savings) and CNSS (social security, your future public pension), while dividends offer flexibility. The right balance depends on your situation. Bankeo connects you free of charge with a verified accountant/CPA who performs this calculation annually for entrepreneurs like you, and we're there to support you; our salary vs. dividend calculator provides an initial overview.