A specified dividend (also known as a fixed-rate dividend) is a dividend that is taxable to the shareholder who receives it and is paid by the corporation (which must be a Canadian corporation, i.e., a CCPC) out of income taxed at the general corporate rate (rather than the small business rate) and providing shareholders with a higher dividend credit. Determined dividends receive enhanced treatment in the form of a gross-up and a tax credit for shareholders who receive them and who are individuals residing in Canada. However, a Canadian corporation may only pay eligible dividends up to the amount of its balance in its General Rate Income Account (GRIA). The corporation must also designate the dividend as “eligible” at the time of payment, by notifying the shareholders in writing to that effect.
Thus, an eligible dividend is a cash dividend paid to a resident of Canada by a corporation—whether a Quebec or Canadian corporation—and designated by that corporation as a specified dividend.
With respect to this type of dividend, the corporation’s income is added to a special account called the general rate income account (GRIA). The GRIA contains a corporation’s income that has not been reduced by small business deductions or any other special tax deductions. The purpose of the CRTG is to allow the distribution of income accumulated in this account while ensuring it is taxed appropriately, since a specified dividend provides for a gross-up and a more generous dividend tax credit.
As for the corporation’s payment
Any affected shareholder must therefore be notified, for the purposes of preparing their tax return, that the dividend declared to them is a “specified” dividend. Generally, the corporation will send these shareholders a letter to that effect; alternatively, at the time of payment, it may include a check stub indicating that the dividend is a “specified” dividend, should such a method of payment be used. In addition, other forms of notification considered acceptable include a notice posted on the company’s website, a notice included in the company’s quarterly or annual reports, or a notice incorporated in shareholder newsletters or other similar corporate publications.
For additional information, a company’s ability to pay qualified dividends to its shareholders depends, among other things, on its tax status. tax status. In fact, an eligible dividend is generally paid by a corporation whose income is subject to the general (higher) corporate tax rate rather than the small business tax rate. Consequently, the specified dividend is therefore subject to a lower tax rate in the hands of the shareholders who receive it. In contrast, a dividend considered to be an undetermined dividend or ordinary dividend is one received from a corporation that paid it to its shareholders out of its business income eligible for the small business deduction, the DPE.