A designated dividend (also called a rate-determined dividend) is a taxable dividend for the shareholder who receives it. Generally, it is associated with income that has been taxed at the general corporate rate rather than the reduced rate applicable to certain small business income. Designated dividends benefit from enhanced gross-up and dividend tax credit treatment for shareholders who receive them and are individuals resident in Canada. In the case of a Canadian-controlled private corporation (CCPC), its ability to pay designated dividends without being subject to the tax applicable to an excessive designation generally depends on the balance of its general rate income account (GRIA) . The corporation must also designate the dividend as "designated" and notify shareholders in accordance with applicable tax rules.
Thus, an eligible dividend is a taxable dividend paid to a resident of Canada by a corporation that is a Canadian corporation and designates the dividend as an eligible dividend. A corporation's ability to pay such a dividend depends, among other things, on its tax status.
Regarding this type of dividend, particularly in the case of a Canadian-controlled private corporation (CCPC), certain income and other amounts stipulated by tax rules are included in a special account called the General Rate Income Account (GRIA) . Generally, the GRIA reflects after-tax income that has been subject to the general corporate tax rate rather than the reduced rate applicable to small businesses. The GRIA is used, in particular, to determine a CCPC's ability to pay eligible dividends without being subject to the tax applicable to an excessive designation. The eligible dividend then benefits, in the hands of a Canadian resident individual, from a higher dividend surcharge and credit than those applicable to an ineligible dividend.
Regarding the payment of eligible dividends by the company , these may be payable on the date and according to the terms specified when they are declared. However, the company must designate the dividend as "eligible" before or at the time of payment and notify the shareholders concerned in accordance with applicable tax rules.
Every affected shareholder must therefore be notified that the dividend paid to them is a "specified" dividend. In the case of a private company, the company may, for example, send a letter to this effect or, when making the payment, include a check stub indicating that it is a specified dividend , if such a payment method is used. When all shareholders are also directors of the company, this designation may also be recorded in the company's minutes. For a public company, other forms of notification are acceptable, including a notice published on the company's website or included in its quarterly or annual reports or in certain other communications to shareholders.
For your information, a corporation's ability to pay eligible dividends to its shareholders depends, among other things, on its tax status. An eligible dividend is generally associated with income that has been taxed at the standard corporate tax rate rather than the reduced rate applicable to certain small business income. Consequently, for an individual resident of Canada, an eligible dividend benefits from a dividend surcharge and a dividend credit. Conversely, a dividend considered to be a non-eligible dividend , also commonly referred to as an "ordinary dividend," is associated with business income of a Canadian-controlled private corporation (CCPC) that has benefited from the small business deduction (SBD) , subject to applicable tax rules.