When you receive a dividend, which is a regular payment of profit made to investors who own a company's stock, it can be in two forms:
- Ineligible Dividend - this type of dividend is from a company that has paid tax at a lower small business rate. You receive a markup (1.15) and you also get a tax credit on the marked-up amount
- Eligible Dividend - this type of dividend is from a company that has paid tax at a higher corporate general rate. You receive a markup (1.38) and you also get a tax credit on the marked-up amount
Eligible dividends are preferable as they generally result in less tax to be paid by the taxpayer