How Much Dividend Income Is Tax-Free in Canada?

Small business owners in Canada, particularly those operating Canadian-controlled private corporations (CCPCs), can often receive around $30,000 to $35,000 in non-eligible dividends tax-free depending on their province and income mix.  

This tax-free range varies because of the dividend tax credit and the basic personal amount, which can offset personal taxes on dividends if total income is low and dividends are the only income source. 

This guide breaks down how dividend taxation really works for owner-managed corporations, when dividends can be tax-free, and how to plan your dividend strategy for maximum efficiency. 

Understanding Dividend Income for Business Owners 

A dividend is a payment your corporation makes to you as the owner, usually from profits that have already been taxed at the corporate level. 

Unlike a salary, dividends don’t come through payroll, they’re declared from your company’s retained earnings and paid out to shareholders (you). 

Most incorporated business owners in Canada receive what’s called non-eligible dividends from their Canadian-controlled private corporation (CCPC). 

These are different from “eligible dividends” paid by large public corporations, but still receive preferential tax treatment compared to salary or interest income. 

When Dividend Income Can Be Tax-Free 

There isn’t a fixed “tax-free dividend amount.” 

But because of the dividend tax credit and basic personal amount, small business owners with low total income can often earn dividends with little or no personal tax. 

For 2025, approximate tax-free dividend ranges for non-eligible dividends are about: 

• $31,000 to $34,000 in Ontario, 

• $29,000 to $32,000 in Quebec, 

• $33,000 to $36,000 in British Columbia, 

These ranges differ slightly due to provincial tax credits and bracket structures. The tax-free dividend amount drops if the owner has other sources of income. If you have other income, from employment, interest, or capital gains, your tax-free threshold drops. 

Dividends vs Salary: What’s Really “Tax-Free” 

For owner-operators, the main decision is whether dividends or salary make saves them the most in taxes, and keeps the most money in their pockets. 

Here are some notes on each:  

Dividends: 

• No CPP contributions (more take-home cash now) 

• Simpler bookkeeping, no payroll runs or deductions 

• No RRSP contribution room 

• Don’t reduce corporate tax 

Salary: 

• Creates CPP and RRSP room (long-term benefits) 

• Reduces corporate taxable profit 

• Increases immediate costs (CPP, payroll admin) 

In practice: Many business owners blend both. You might pay yourself a small salary for CPP and RRSP purposes, then take the rest as dividends to minimize overall tax. 

Reporting Dividend Income Correctly 

Dividends are declared from after-tax corporate profits and paid out of retained earnings, not from day-to-day expenses or reimbursements. Each declaration requires accurate reporting and proper documentation. 

Your corporation must issue T5 slips (Statement of Investment Income) to shareholders each year, showing: 

• The actual dividends paid 

• The grossed-up amount for CRA reporting 

• The federal and provincial dividend tax credits claimed 

If you operate a CCPC, you (or your accountant) file these T5 slips along with your corporate return. Failing to report or misclassifying payments can lead to CRA reassessments and penalties. 

For dividends from foreign companies, remember: they don’t qualify for the Canadian dividend tax credit and are fully taxable. 

Recommended Tools 

• QuickBooks Online or Wave: track retained earnings and automate T5 preparation 

• Wagepoint or Plooto: manage recurring owner payments 
• Maintain clear separation between reimbursements, shareholder loans, and dividends, this is key to staying CRA-compliant. 

Common Mistake: Mixing Reimbursements and Dividends 

One of the most common issues Mesa accountants see is misclassification between reimbursements (non-taxable) and dividends (taxable). 

When business owners accidentally record reimbursements as dividends, the CRA may treat them as taxable income, even though they shouldn’t be. 

That’s why proper bookkeeping and T5 reporting matter. 

Why Professional Planning Matters 

The right dividend strategy depends on your province, income mix, and corporate profits. 

Even small mistakes, like declaring too much too early or forgetting a T5, can create avoidable tax bills. 

A professional accountant helps you: 

• Determine your tax-free and low-tax dividend range 

• Structure your dividend–salary mix 

• File T5 and T4 slips accurately 

• Stay compliant with CRA and Revenu Québec requirements 

The goal isn’t to pay zero tax, it’s to pay the right amount while keeping more cash inside your corporation. 

Key Takeaways 

• There’s no universal tax-free dividend amount, but most owners can receive around $30K–$35K in non-eligible dividends tax-free if it’s their only income. 

• Dividends can be more efficient than salary at lower income levels, but less so once your income grows. 

• Foreign dividends don’t qualify for the Canadian dividend tax credit. 

• Reimbursements are not dividends, keep them separate. 
• Professional guidance ensures your mix of salary and dividends supports both tax efficiency and long-term savings. 

Final Thoughts: Plan Your 2025 Dividend Strategy 

Dividends can be one of the most tax-efficient ways to pay yourself from your corporation, if planned correctly. 

At Mesa CPA, we help business owners across Ontario, Quebec, and British Columbia: 

• Balance salary and dividend payouts 

• File compliant T5 and T4 slips 

• Maximize after-tax income 

• Stay ready for CRA audits 

Book a consultation to learn how much dividend income you can take tax-free, and how to structure your compensation for long-term growth.